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December 2015

Munich Re Agro Insurance Info

Keeping the ball rolling and improving agricultural insurance worldwide

Dear Reader,

It’s been a while since the last newsletter was published. This is not because there was no news to report – rather the opposite. We as a community were very much engaged in keeping the ball rolling on agricultural products and on agricultural insurance systems in many parts of the world. We are sure that we have already met with you in person during the course of this year.

Morocco: The International Microinsurance Conference discussed moving microinsurance towards sustainable business models

November 2015. The Munich Re Foundation hosted the 11th International Microinsurance Conference in Casablanca. Once again, experts from academia, representatives of governments and industry associations, development banks, development agencies and donors, international insurers and Munich Re, and mobile and digital technology service providers exchanged successful expertise on life, health and agricultural microinsurance.

There were three main takeaways in the agricultural space. There was a discussion that so far micro weather-based index insurance has not been able to be scaled up, although many efforts have been made by various players. While this was discussed critically, Munich Re introduced its experiences in yield-index insurance. Indeed, yield-index insurance – not at the farmer level but at the aggregator level – is very promising. Aggregators can be players within the production value chain (upstream or downstream) as well as regional administrations such as municipalities that buy insurance coverage for or on behalf of their farmers. The third takeaway was that stand-alone agricultural insurance products for small and emerging farmers are not as successful as bundled products where insurance coverage against adverse weather events (and hence loss in yield) comes together with finance or with input products. Such product packages are more accepted when the bundling fits the production needs of the farmers.

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USA: US Secretary of Agriculture opened the conference of the Europe-based AIAG

September 2015. Kansas City co-hosted the 33rd AIAG Conference (International Association of Agricultural Insurers). This marked the first time in the 64-year history of AIAG that it has held a meeting in the United States. In the keynote speech, the Secretary of the Department of Agriculture (USDA), Tom Vilsack, underlined the importance of crop insurance for ensuring a stable food supply as a reason to make premium subsidies the central pillar of agricultural policy in the US – a position that was envied by industry representatives from Europe, where only a small number of governments support agricultural insurance. The current WFO President, Dr. Evelyn Nguleka from Zambia, illustrated that the farmers' role as food producers and economic actors is similar in each part of the world and at every level of farming.

Agricultural insurance industry leaders, representing more than 30 nations from Europe, Asia, North and South America, met to discuss how crop insurance can help address the challenges facing the global farming sector. In its presentation (also downloadable below), Munich Re focused on the hidden value of reinsurers in the agricultural insurance business. Central discussion points included new technologies, new insurance products, new government policies, and new farming practices to deal with climate change and market volatility.

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France: OECD hosted the Global Index Insurance Conference

September 2015. The World Bank Group's Global Index Insurance Facility (GIIF) organised an industry conference in Paris to exchange findings from current initiatives that are underway worldwide to make index insurance successful. Among the sponsors and partners were insurance companies, the Geneva Association, and the Impact Insurance Facility of the International Labour Organization (ILO).

While there is already a lot of expertise in weather-based index insurance, yield-index insurance is attracting increasing amounts of interest, as pointed out by Munich Re during a panel discussion. Key issues discussed at the conference centred on sharing innovative and successful solutions in index insurance to mitigate the risks for governments, enterprises and small farming businesses. Several sessions focused on disaster-risk finance approaches at the sovereign level, distribution or dissemination of payouts, and the quality aspects of an index-based insurance product.

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G7 and G20: Agricultural insurance discussed at the highest political level

May/September 2015. This year, both the G7 (Group of Seven) and G20 (Group of Twenty) forums of states embraced the topic of resilience to weather-related disasters.

In preparation for the G7 Summit in Elmau, the Climate Risk Insurance Initiative, InsuResilience, was launched to increase access to indirect and direct insurance coverage against the impact of climate change for up to 400 million of the most vulnerable people in developing countries by 2020. Disaster-risk challenges in the agricultural sector are also included. The principal task is to mobilise public and private funds to adapt to the impact of climate change. In order to meet the objectives of the initiative in just five years, the most promising approaches will centre on prudent risk-finance solutions at sovereign (macro) level, and on pooling governmental risks, as with the ARC (African Risk Capacity) or the CCRIF (Caribbean Catastrophe Risk Insurance Facility). Munich Re is supporting the facilities, both with expertise in innovative insurance solutions and with risk capital. Meso-level solutions that encompass portfolio coverages at aggregator level can also reach a significant number of today's uninsured. For these solutions, a key task is disseminating loss payments to those affected. This can be performed by applying innovative digital technology, which is also a prerequisite for access to direct insurance. However, any large-scale uptake among the target groups at meso-level is expected to take considerably longer than five years.

In Antalya and as part of the G20 forum, experts convened to focus on supporting agricultural finance and insurance in a responsible manner. The findings went into a G20 working paper entitled "Innovations and Emerging Trends in Agricultural Insurance". The paper looks into public-private partnerships (PPPs) in agriculture insurance as well as insurance products. Index-insurance products based on weather parameters or yield are introduced. It also discusses the risk scenarios to which each of the index types are best suited.

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Paraguay: The Ministry of Agriculture and the World Bank brought together experts for a workshop on agricultural insurance

May 2015. The workshop was set up to share the results of the "Agricultural sector risk assessment" study prepared by the World Bank (see link below). The representative from the Ministry emphasized that the exposure of agricultural production risks is extremely high due to the drought risk. At the same time, the uptake of insurance cover is low.

The attending representatives from academia, development agencies, regional insurers, and Munich Re as international reinsurer were asked to provide solutions. In Paraguay as well as in many countries, one reason that was mentioned for the low insurance penetration is the absence of co-financing of premiums in a public-private partnership. Next to this public commitment, one way forward that was proposed was to focus on the weather and yield data landscape, with regard to both quantity and quality. Specifically, one suggested way of achieving this was to improve collaboration between all the involved entities. Based on a robust data set, the upcoming challenge will be to build an insurance product that meets farmers' requirements to gain access to loans.

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USA: Advancements in analytics in a highly developed market

The conferences demonstrated the importance of ongoing collaboration in a public-private partnership in agricultural insurance: academia, the private sector and government provide analyses and solutions for current challenges in crop insurance, making sure that insurers continue to engage in the market, that producers' demands are met, risk-adequate returns can be generated and that governmental budget constraints are met for the best solutions serving the farming community.

March 2015. The AIR Crop Symposium was held in Boston during the AIR Envision conference. AIR crop insurance experts presented industry insights and updates on crop risk modelling solutions. During an industry panel discussion, Munich Re was able to give its evaluation of the current US crop insurance market and make suggestions for adjustments, which would extend to rate adjustment both in MPCI and in Crop Hail/Named Peril.

June 2015. In Washington DC, the 4th International Agricultural Risk, Finance and Insurance Conference (IARFIC) brought together about 120 experts and leaders in agriculture, finance and risk management, across various disciplines (private sector, academia and government) and across borders (USA, Canada, China, Europe, Southeast Asia). The programme focused on innovative research, policy discussion and business challenges, as well as successes relating to agriculture. Topics included big data, improving agricultural insurance rate making to reflect the impact of climate change, updates and innovation from China, and agricultural insurance and the way forward. During one of four plenary sessions, Munich Re gave its assessment of the much-discussed implied volatility factor used by the Risk Management Agency (RMA) in multi-peril crop insurance rate making.

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We hope you have enjoyed this issue of Munich Re Agro Insurance Info Worldwide.
Your Munich Re Agro Team


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