Sensors, drones and satellites can tell us a lot more about the state of our crops today and offer better predictions about yields. At the same time climate is changing which can lead to dramatic changes of productivity. All this has an impact on insurance and reinsurance. We wanted to know how crop insurance has changed in the last years and how it will change in the future. We talked to Reto Schneider, Head Agriculture Europe, Africa and Americas at Allianz Re about the presence and the future of crop insurance. Allianz Re has a dedicated Team for Agricultural business since 2009, assessing and underwriting reinsurance for agricultural production insurance from internal and external sources. The global team consists of 10 specialists based in two major hubs in Zurich and Singapore and the head office in Munich.
The Fruit World: What is your role at Allianz Re?
Reto J. Schneider: I am leading a team of agricultural specialists for agriculture reinsurance and we deal with Europe, Africa and North and South America. Agricultural business at Allianz is primarily reinsurance for crop insurance. In 16 countries we also offer direct insurance products.
The Fruit World: Has crop insurance changed in the last years? How?
Reto J. Schneider: The crop insurance product landscape has changed quite significantly in the last 10-15 years. It used to be relatively simple products like hail insurance and others followed by multi peril crop insurance products. In the last 10 years you could see then the advent of so called index insurance products. The index insurance settles a claim following an index without a specific assessment at the insured´s location. The index can be a certain yield in a district or region. It can also be a weather station that provides rainfall data so that you can pay a claim according to excess rain information or a drought scenario. The index products are innovative solutions that you can offer when a ‘history’ of farmer-specific production and loss data is not available, especially in emerging markets – like in Africa or India.
The Fruit World: How will it change in the future?
Reto J. Schneider: The future of crop insurance will be the use of earth observation with the help of satellite data. Agriculture data from satellites is not new – you can find data from 15-20 years ago, although with low resolution only. The game changer is the much higher resolution that is available today. High resolution data with an array of 10×10 metres is now available. On a single hectare you can have up to 100 grid points. As soon as we have a history of such data of several years, it allows us to create pure index insurance or a combination of index insurance with classical products with the highest accuracy at the exact location. We will see a variety of new developments in the agriculture sector especially with the help of satellites.
The Fruit World: There is a lot of sensing and detecting available nowadays, with drones, cameras, sensors, satellites and probes. Does more accuracy make insurance rates cheaper?
Reto J. Schneider: The accuracy of the insurance product is getting better. In the future insurance settlement will be closer to the real situation in the field whereas an index product takes an average situation and applies it to the claim. Depending on the data the index can be pretty ‘raw’ as a reference. If you know that your crop and your farm only partially ‘follows’ the district yield your claims can diverge from the actual situation. I might not be happy with it as a farmer – but if there is no other product available, I still buy it. If our available data is more accurate the farmer might still pay the same premium, but the settlement will be much closer to reality.
The Fruit World: What are the most interesting growth markets for crop insurance in the next years?
Reto J. Schneider: We have seen quite a significant growth curve especially in India in the last years. I think this growth curve will flatten out in the next couple of years. And I think there will be new territories where we will see growth for agriculture insurance – primarily Africa with the exception of South Africa which is a relatively mature market. The rest of Africa will develop heavily in the next 10 years. We need local ambassadors in the various countries to develop the business locally. Therefore we invest in local capacity building. This knowhow development process will happen in the next 3-5 years resulting in moderate growth. And then we will see hopefully solutions coming and significant growth happening. The development will look like an S-curve: Slow at the beginning, steep growth as we have seen in China and India and then it will flatten out again. Another region is Southeast Asia with a lot of agricultural production. There is also a big need for agriculture insurance. I would hope that this is another growth area for us in the next years.
The Fruit World: Do you feel that climate change is a growing issue for agriculture and therefore agriculture insurance?
Reto J. Schneider: The crop mix in certain countries is changing. In Canada you can really see that production areas for crops like Soy Beans has moved in the last 10 years. The same happens in the fruit area – and suddenly you can grow crops that could not be grown in certain areas before. Grape and wine production can push further north and varieties for warm areas can now be produced in Germany or Switzerland. Climate change is constantly priced into the insurance product as contracts are typically agreed on annual basis and therefore, models are instantly updated with occurrence of extreme events. We do not load an insurance premium with a “climate change surcharge” but we use forecast information, eg for El Nino and La Nina events to calibrate our models. We can see that the pattern of frequency and severity of losses is changing. Partially we can see more frequent and more severe losses though not everywhere. But it is happening on a continuous basis. It is not that the world was bright yesterday and tomorrow it is dark.
The Fruit World: Insurance companies tend to have a lot of ‘smart people’ to create forecasts and data analysis of industries. Is there a way to make this ‘global look’ available to farmers and other industry stakeholders which have a more local view on their business?
Reto J. Schneider: As an insurer and reinsurer we are pretty far away from farmer’s decisions. We might like to think that the insurer is at the center of the business, but that is not the reality. We have to let the farmers make their decisions and provide them risk management support. Our ambition is to become sustainable within our business. In about 16 countries we offer direct insurances – and if we have the impression that our clients are not acting sustainably (or growing risky crops for the respective climate) we might just not insure the risk – or the risk is seen as higher with resulting higher premium rates. But it is not on us to pressure the farmers to change the way they produce. It could be a business area to offer consulting as we have a lot of knowledge but farmers usually have some reservations. They want to take their own decisions – rightfully – without being tied to specific companies.
The Fruit World: In many areas like banana the biggest risk seems to come from the lack of diversity. Do you see that risk and what are your conclusions?
The lack of diversity might represent a risk to the industry as crops can be more susceptible to diseases. Diseases are also spreading in new areas. In Switzerland and Germany we suddenly had incidents of Bluetongue disease with sheep which was limited to warmer countries – and it became clear that the disease had ‘jumped over the alps’. The same thing is happening with fresh produce and we have to monitor this trend closely. Climate change is one reason that plant (and animal) diseases can develop adversely but also the changing of cultivars and production techniques, focusing rather on output than on resistances or preventing occurrence of diseases can play a role.
The Fruit World: Thank you very much.