Questions: Why should crop insurance lag behind in market entry? – Reinsurance News

It would not be wrong to think that a product that transfers the risk from farmers to insurers would be easier to sell, because the former is less able to deal with risks than the latter. Likewise, it should be a simple sale of a product that stabilizes the income of men, encourages them to increase productivity, and removes the responsibility from the governments that may be asked to provide financial support.

But crop insurance has not yet made a big impact. Penetration is limited, and many of the world’s 500m smallholder farmers find the product unavailable or inaccessible. The market is also limited by its inefficiencies, with crop insurance revenue at just $35bn—equivalent to just 1.5% of non-livestock revenue.

Recently, Reinsurance News sat down with Arsira Thumaprudti, head of business development at Agritask, to discuss what’s going on.

When asked about the current state of crop insurance and where it sits within the industry and the global economy, Thumaprudti says it is likely to have a major impact on several countries. But Thumaprudti calls the potential growth ‘enormous’, saying the market is expected to reach $53bn by 2027 with annual growth of 6.5%.

“Only a few countries,” he says, “are enjoying the benefits of large government programs that have been established over a long period of time and well-established insurance distribution systems. While many such as the US, China, and India tend to have higher insurance premiums for this reason, the products are often better managed by fixed pricing or product design. In other words, ‘one size fits all’ for many farmers.”

There are also big differences around the world. In Latin America, for example, there is an active business community, all without the need for support. Currently, in Sub-Saharan Africa, only 3% of smallholder farms have agricultural insurance.

“Many of the solutions in Latin America,” says Thumaprudti, “are still working in a traditional way, which is to get information from the damage assessment of the field or the farm. The result is that more costs are spent on operations and management, which leads to lower costs, thus it prevents many farmers from purchasing crop insurance in the first place.”

But in sub-Saharan Africa, says Thumaprudti, many farmers are dependent on government subsidies, which have led to insecurity and overcrowding.

Thumaprudti added: “Furthermore, the insurance solutions that are available are often ‘parametric’ – payments depend on external parameters such as the amount of rain in the area and not on the actual conditions in the field. Although being the only practical choice in many areas, there is no doubt that parametric. Most insurance premiums are too high for most farmers to afford, and conventional insurers don’t want to set up distribution systems or send workers to collect the data needed to produce the right products.”

These companies should, says Mr. Thumaprudti, push in this area, especially considering the benefits that the drug has for stakeholders.

He says farmers will not have to bear the brunt of climate change with these drugs, because they transfer the risk to them and to insurers. Crop insurance, he adds, also has the potential to help meet the global demand for sustainable food production by helping farmers stabilize their income.

He continues: “This encourages farmers to get the best seeds and agricultural equipment, to receive loans easily from financial institutions to improve agricultural activities, and to help people in many areas by providing money for local businesses.”

He concluded: “Climate change is not going anywhere.” As it becomes a major global problem affecting agriculture everywhere, the need to remove risk from poor farmers and shift it to richer areas through crop insurance is growing. “