Agricultural RisksCrop insurance
At this time one can find a lot of different insurance systems to protect the agricultural production. There are some with only a few named perils and others with almost all perils included in the covers. The experience made in all countries with private organised crop insurance systems showed impressively that the problems with the loss assessment increases as more “influenceable” perils are included (moral hazard problem). Especially perils like pest and diseases require a good experience and knowledge to be handled properly.
The MPCI Crop insurance system which has been established in the United States over the last approximate 30 years can be judged today as a good functioning insurance system despite of its wide cover. As you already know all important perils like hail, frost, snow, flood, storm, drought, pest and diseases are included in this MPCI-system. The reasons why this system has been running successfully, are the large experience based on long term statistics, the adequate number of specialised loss assessors working in teams all over the country and last but really not least the governmental support in premium payments and reinsurance participation.
We would suggest at this stage to be quite restrictive concerning the number of perils to be included in the cover. We would rather see the following “cover system” as an adequate instrument to enter into this market:
Basic cover:
I)
Hail:
Extended cover:
II)
Winter perils (frost, decaying,
soaking):
III)
Flood, Drought:
If the cover C appears to be an important element to have in the insurance system the guaranteed yield under this cover should be 30% eventually 45% or 60% of the average normal yield. The average yield should be based on actual production history. The indemnification would be the difference between the effective and the guaranteed yield (eff. yield < gua. yield). This should enable: - the farmer to compensate its variable costs in total or partly - the insurer to limit its exposure and avoid antiselection - the farmer to get the possibility to buy this cover for an affordable price
The peril of drought can only be provided within the whole cover, since it is not possible to assess the loss directly on the contrary of hail or frost. Therefore the following restrictions should be implemented:
- allowed cover combinations: A; A+B; A+B+C, - for cover C all crops on the farm have to be insured - cover C should be provided only for good risks (on a very selective basis) - premium subsidies from the government for cover C
Loss assessment:
As already mentioned a good functioning loss assessment system remains the most important element for a crop insurance system. In a first step it would certainly be useful to reactivate experts (loss assessors) which have already been involved in the previous governmental insurance system. This would enable your company to provide a good assessment organisation in a relative short period of time. Also the co-operation with "scientific and/or technical centres” in the agricultural sector would undoubtedly simplify your work to establish insurance products in this business line
About any governmental involvement it should be made clear which is or will be the future role of the state administration within the whole agricultural insurance sector. Aids or grants (subvention or other kinds of financial helps on the premium side) would make it much easier to establish the whole crop insurance structure. The important point is to prevent any kind of competition between the private and the public sector.
Therefore, we absolutely need the information about the following items:
- Do you have already connections with people (responsible or experts of the former insurance system) with experience in this kind of business?
- Would you be able to organise a structure for acquisition and loss assessment? (if yes in which period of time)
- What is your need as to education and training of experts and/or loss adjusters?
Reinsurance:
The composition of the reinsurance program depends on the financial capacity of your company. To start with a new business line we suggest that the program should contain both a proportional (Quota Share) and a non proportional element (Stop Loss) protecting the retention. The details concerning limits of TSI per farm or per area or variable retention etc. should be discussed later on once the insurance scheme has been clearly designed.
In the case you are interested in our support and assistance to start with a reinsurance program you would have to provide us also with the following insurance information:
- Which are the main factors of influence on yield levels and total output for the targeted areas? (Natural hazards, pest, diseases, prices, availability of inputs and capital)
- Are there statistical data available which show the effect on yield level due to natural hazards like hail, drought, flood, excessive rain?
-
How where these risks insured before?
- Possible potential for agricultural risks insurance
I
Reinsurance
of Agricultural Risks
1
Information
on primary insurance company
1.1
Name of
Insurance company. Plans in agro? Are there plans to develop agricultural
insurance?
1.2
UW
expertise: How are you (the insurance company) prepared? Education and experience in agriculture of the
underwriters?
1.3
Policy
Wording: Please submit general and special conditions and tariffs (in English,
French, German or Spanish).
1.4
Loss
assessment: Do you have experts with
experience in agricultural loss adjustment?
1.5
Retention,
commission: What percent of liability the
primary insurance assumes for its own?
2
The risk:
Specific questions / remarks You want to start with agricultural insurance? For
this you need basically a policy wording with special conditions and a tariff
system, and a loss assessment system. On the other hand you need technical
assistance and reinsurance support, that is an obligatory RI treaty (we can
give you). 2.1
Loss
experience: Provide information on losses over the past 10 years.
2.2
Values i)
The SI (Sum
Insured) shall be the total annual production
ii) Franchise Should always be as % of Sum insured. Otherwise
you have to control the loss of and to pay for very small losses! An insurance
should protect from big losses.
2.3
Main perils (insured losses) You should first limit your cover to
the most important perils and avoid at the beginning the problematic ones, e.g.
drought and flood. The latter absolutely need knowledge about the exposure in
that area.
1.1
Name and
address
1.2
Location of
the risk (detailed map of the country ‑ with site(s) marked)
1.3
How long
has the insured been in crop business?
1.4
Exposure to
perils
1.5
Full
details of surrounding areas (forest, other crops, urban...)
1.6
Details of
public access (roads, railways...)
1.7
Details of
plantation management
1.8
Qualification
and experience of the personnel
1.9
Usual
market
2
Production
2.1
Type of
cultivation (and age if necessary)
2.2
What are
the main crops grown (area, volume)?
i)
for domestic consumption
ii)
for export
2.3
Vegetative
cycle (dates of sowing and harvesting)
2.4
Area (in
hectares) under cultivation. Number of fields and distance between them
2.5
where are
the main crop growing areas and which type of crop is grown there?
2.6
Harvesting
methods and facilities. Are they available out of the season
2.7
Yield per
area unit with comparable figures over the past years (5 to 10 previous years)
2.8
Production
costs per area unit (and month by month) and in case of plantations also the
established costs
2.9
Selling
prices at farm level in the past five years for the main crops?
If possible please give monthly price series for each crop, to see
yearly and seasonal price fluctuations
2.10
Irrigation schema
2.11
Major vegetative accidents
3
Climatic
data
Statistics over the last ten years or more
3.1
Origin of
the data: location of the meteorological facility
3.2
Temperatures
and rainfall: monthly averages
3.3
Number of
frost days (temperature below O°C) per month
3.4
Number of
hailstorms per month
3.5
Frequency
of strong winds (over 60 Km/h or 40 knots), main directions
4
Insurance
aspects
4.1
Which are
the main factors of influence on yield levels and total output in the country?
(Natural hazards, pest, diseases, prices, availability of inputs and capital)
4.2
Are there
statistical data available which show the effect on yield level due to natural
hazards like drought, flood, excessive rain, fire?
4.3
Perils
required: give a list
4.4
Method of
valuation of the total sum insured
4.5
Loss
prevention facilities
4.6
Potential
salvage after damage by perils covered
4.7
Loss
experience over the last 10 years
Including area affected, sum insured, percentage damage, total area
under cultivation and related total sum insured, cause.
4.8
Name of
loss assessor to be appointed in the event of loss, and his experience in the
matter
4.9
Are there
or were there already existing crop insurance covers?
If existing, specify conditions; scope of cover, deductibles, rate, loss
adjustments, results
4.10
Are there any aids or grants from any
government or other institution involved?
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