Transcript Insurance options in facilitating risk management in

Insurance options in facilitating
risk management in agriculture
Reinhard Kuschke
Agriculture Underwriter Swiss Re
2009 AFRACA
Integrated Risk Management Expert Meeting
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.
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Presentation overview
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Swiss Re Agro
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Intention of insurance
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Insurance products
– Traditional, re-innovated, parametric products
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Micro insurance
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Reinsurer’s perspective
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Swiss Re position in Africa
Swiss Re Agro background
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Swiss Re Agro Team formally established in 1991
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Comprises of 15 Underwriters
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Physical presence in the Americas, Europe and Africa
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Geographical penetration globally
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To advise and support the agricultural market
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Underwrite on both a facultative and treaty basis
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Global 2008 Agro Premium: USD 440 million
Swiss Re Africa background
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Swiss Re Africa premium production dominated by the
South African market
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Mainly Crop Hail and MPCI business written in South
Africa
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Rest of Africa balanced business
South Africa
Rest of Africa
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Swiss Re Africa background
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Premium distribution per category
100
80
60
40
20
0
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Crop
Forestry
Livestock
Aquaculture
Floriculture
Intention of insurance
programmes
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Risk management option by transferring risk
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Loan collateral
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Provides stability for long-term business plans
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Mitigation of farm level non-recovery risk
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Macro level – support towards national disaster plans
Agricultural value chain risk
management participants wide of
insurers
Reinsurer
Government
Agro insurer
Input suppliers
Farmers
Banks/Investors
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Traders
Processor
s
Consumer
Insurance products
Two types of insurance cover
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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
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Parametric
– Protection provided against correlated risks such as
extreme weather events
– Growing awareness
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Traditional insurance products
Multi Peril Crop Insurance (MPCI)
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Yield shortfall product
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Grouped systemic perils
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May affect broad geographical area
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Can present excessive losses
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Loss determined when yield is harvested
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Requires detailed UW, risk evaluation, continuous
monitoring
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Places a heavy burden on the insurance infrastructure
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Asymmetrical information and adverse selection
Traditional insurance products
Named peril crop insurance
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Damage based product
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Nominated perils
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Localized occurrence
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Accumulation of losses tend not to overwhelm capital
reserves
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Loss adjustment based on physical and visible damage
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Requires fair knowledge of crop production
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Cover available for most field and horticulture crop,
floriculture and as specialised form forestry
Re-innovating and tailoring of
traditional insurance products
Benchmark products
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Based on the MPCI product
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Applied on micro-level
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Field sizes varying between 0,5 and 3 ha
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Farmers Cooperative Union as insured and individual
farmers populating the schedule
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Farmers grouped geographically with at least one field
selected as benchmark site
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Underwriting and loss assessment based on benchmark
Re-innovating and tailoring of
traditional insurance products
Mauritius
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Currently operational
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Mauritian Government agreed to subsidize premium from
2009
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Increased uptake anticipated
Ethiopia
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Pilot launched in 2007
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Scaled up to include a second Farmers Co-operative
Union in 2008
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Micro-financing via Farmers Co-operative Union drives
insurance need
Parametric insurance products
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Provides protection against correlated risks
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An index is selected that closely correlate with actual
losses
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Based on historical patterns, be objective and easily
observable
Mainly two types of triggers:
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Meteorological or weather events
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Area based yield triggers
Parametric insurance products
Affinity
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Eliminates moral hazard
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Immune to adverse selection
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Reduces transactional cost
Restriction
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Basis Risk – the mismatch between amount resulting
from the trigger and the actual loss
Micro insurance
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Micro Insurance is defined as the provision of insurance
to the low-income base
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Frequently in conjunction with a micro-finance loan
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Agricultural micro insurance mainly covers crop
(dominated by MPCI) and livestock
Micro insurance
Micro Insurance feasibility requirements
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Cheap and lesser complex
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Compulsory participation
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Selling to groups
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Distribution through entities like agricultural co-operatives
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Government support
From a reinsurer’s perspective
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Long-term view
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Government support in legislation, regulation, premium
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Market maturity in UW capability, technical expertise,
insurance acceptance by agricultural community
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Well developed insurance infrastructure
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Sound underlying risk analysis
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Well developed business plans
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Supportive towards the pioneering spirit
Swiss Re’s position in Africa
Swiss Re …
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recognises that the bulk of the African livelihood depends
on Agriculture as major constituent of the continental
GDP
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further recognises the vulnerability of the continent’s
agriculture to climate shocks
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provides capacity for the African Agricultural insurance
market
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is supporting and pioneering innovative small-scale risk
transfer schemes
Swiss Re’s position in Africa
Swiss Re …
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strategise towards geographical and segment
diversification with expansion into Africa as a key priority
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aims at establishing long-term business programmes
Thank You
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