It would not be naive to think that products that transfer risk from farmers to insurers will be easier to sell because they are less able to handle risk than before. Likewise, it should be an easy sell for a product that stabilizes fathers’ incomes, encourages them to increase productivity, and relieves governments of the burden of calling for subsidies.
But crop insurance is yet to make a big impact. Penetration is low, with many of the 500m smallholder farmers worldwide finding produce often unavailable or inaccessible. The market is also constrained by its poor performance, with crop insurance premiums accounting for only $35bn – equivalent to one to 1.5% of non-life premiums.
recently, Reinsurance News To discuss the issues encountered with Arisira Thumaprutti, Head of Business Development at Agritask.
Asked about the current state of crop insurance and where it sits within the industry and the wider global economy, Thumapruddhi says it has yet to make a significant impact in more than a few countries. But Thumapruddhi calls the potential growth “enormous” and expects the market to reach $53 billion by 2027 at an annual growth rate of 6.5 percent.
“Only a handful of countries,” she says, “enjoy the benefits of significant and long-established government subsidy programs and already built insurance product distribution infrastructure. : are highly regulated with flexible pricing or product design. In other words, ‘one size fits all’ for most farmers.
There are also big differences in the world. In Latin America, for example, an active private sector exists, all without the need for subsidies. Meanwhile, in sub-Saharan Africa, only 3% of smallholder farms have any agricultural insurance.
“Most of the solutions in Latin America,” says Thumapruddi, “still work in a traditional way, which is by physically receiving data from the field or inspecting field damage. The result is substantial administrative and operational costs, which generate prohibitive premiums, which lead to many farmers Prevents people from purchasing crop insurance in the first place.”
But in sub-Saharan Africa, Thumaprudati says, most farmers rely on government subsidies, leading to inadequate risk coverage and limited population access.
Thumaprudti added: “Furthermore, the insurance solutions available are generally ‘parametric’ – payouts depend on external parameters such as rainfall levels in the area rather than the actual conditions of the area. While the only practical choice in many places, there is no doubt that parametric. Most insurance premiums are too steep for most farmers to afford, and private insurers are not motivated to set up the necessary distribution infrastructure or even send workers to collect the field data needed to create appropriate products.
Thumaprudhi says the industry needs to push in this area, especially considering the benefits the product brings to stakeholders.
She says farmers don’t have to bear the brunt of weather volatility with this product, as it transfers risks to them and insurers. Crop insurance, she adds, also specializes in helping farmers meet the global demand for more efficient food production by helping them stabilize their incomes.
She says: “In turn, this will have a positive impact on the wider community by enabling farmers to obtain high-quality seeds and farm equipment, easily obtain loans from financial institutions to upgrade agricultural practices, and contribute to the income of local suppliers.”
She concludes: “Climate change is not going anywhere. As this becomes a major global issue affecting agriculture everywhere, there is a need to shift risks away from needy farmers and transfer them to more resource-rich areas through crop insurance.”