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Insurance options in facilitating risk management in agriculture

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Presentation on theme: "Insurance options in facilitating risk management in agriculture"— Presentation transcript:

1 Insurance options in facilitating risk management in agriculture
Reinhard Kuschke Agriculture Underwriter Swiss Re 2009 AFRACA Integrated Risk Management Expert Meeting

2 Swiss Re History Swiss Reinsurance Company Ltd
Swiss Re is a leading and highly diversified global reinsurer. The company operates through offices in more than 25 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company’s traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management.

3 Presentation overview
Swiss Re Agro Intention of insurance Insurance products Traditional, re-innovated, parametric products Micro insurance Reinsurer’s perspective Swiss Re position in Africa

4 Swiss Re Agro background
Swiss Re Agro Team formally established in 1991 Comprises of 15 Underwriters Physical presence in the Americas, Europe and Africa Geographical penetration globally To advise and support the agricultural market Underwrite on both a facultative and treaty basis Global 2008 Agro Premium: USD 440 million

5 Swiss Re Africa background
Swiss Re Africa premium production dominated by the South African market Mainly Crop Hail and MPCI business written in South Africa Rest of Africa balanced business

6 Swiss Re Africa background
Premium distribution per category

7 Intention of insurance programmes
Risk management option by transferring risk Loan collateral Provides stability for long-term business plans Mitigation of farm level non-recovery risk Macro level – support towards national disaster plans

8 Agricultural value chain risk management participants wide of insurers
Farmers Traders Consumer Processors Banks/Investors Input suppliers Government Reinsurer Agro insurer

9 Insurance products Two types of insurance cover
Traditional indemnity based cover Covers losses due to one or more perils Most common are named-peril and multi-peril crop insurance Well established globally Parametric Protection provided against correlated risks such as extreme weather events Growing awareness

10 Traditional insurance products
Multi Peril Crop Insurance (MPCI) Yield shortfall product Grouped systemic perils May affect broad geographical area Can present excessive losses Loss determined when yield is harvested Requires detailed UW, risk evaluation, continuous monitoring Places a heavy burden on the insurance infrastructure Asymmetrical information and adverse selection Guarantee levels typically between 50 to 70% MPCI policies suited for perils whose individual contributions difficult to measure and impact over period of time

11 Traditional insurance products
Named peril crop insurance Damage based product Nominated perils Localized occurrence Accumulation of losses tend not to overwhelm capital reserves Loss adjustment based on physical and visible damage Requires fair knowledge of crop production Cover available for most field and horticulture crop, floriculture and as specialised form forestry

12 Re-innovating and tailoring of traditional insurance products
Benchmark products Based on the MPCI product Applied on micro-level Field sizes varying between 0,5 and 3 ha Farmers Cooperative Union as insured and individual farmers populating the schedule Farmers grouped geographically with at least one field selected as benchmark site Underwriting and loss assessment based on benchmark

13 Re-innovating and tailoring of traditional insurance products
Mauritius Currently operational Mauritian Government agreed to subsidize premium from 2009 Increased uptake anticipated Ethiopia Pilot launched in 2007 Scaled up to include a second Farmers Co-operative Union in 2008 Micro-financing via Farmers Co-operative Union drives insurance need

14 Parametric insurance products
Provides protection against correlated risks An index is selected that closely correlate with actual losses Based on historical patterns, be objective and easily observable Mainly two types of triggers: Meteorological or weather events Area based yield triggers

15 Parametric insurance products
Affinity Eliminates moral hazard Immune to adverse selection Reduces transactional cost Restriction Basis Risk – the mismatch between amount resulting from the trigger and the actual loss

16 Micro insurance Micro Insurance is defined as the provision of insurance to the low-income base Frequently in conjunction with a micro-finance loan Agricultural micro insurance mainly covers crop (dominated by MPCI) and livestock

17 Micro insurance Micro Insurance feasibility requirements
Cheap and lesser complex Compulsory participation Selling to groups Distribution through entities like agricultural co-operatives Government support

18 From a reinsurer’s perspective
Long-term view Government support in legislation, regulation, premium Market maturity in UW capability, technical expertise, insurance acceptance by agricultural community Well developed insurance infrastructure Sound underlying risk analysis Well developed business plans Supportive towards the pioneering spirit

19 Swiss Re’s position in Africa
recognises that the bulk of the African livelihood depends on Agriculture as major constituent of the continental GDP further recognises the vulnerability of the continent’s agriculture to climate shocks provides capacity for the African Agricultural insurance market is supporting and pioneering innovative small-scale risk transfer schemes

20 Swiss Re’s position in Africa
strategise towards geographical and segment diversification with expansion into Africa as a key priority aims at establishing long-term business programmes

21 Thank You

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