Agricultural sector insurers should explore alternative cover options

Trading in carbon dioxide (CO2) certificates and parametric covers may be alternatives for agricultural risk, given the growing risk trends in this sector, suggests Partner Re.
Climate change, bio-fuels, insurance premium subsidies, commodity price inflation and new farming methods are just some of the many factors influencing agricultural production and causing risk managers and insurers to reconsider risk analysis and cover concepts in this sector, says Partner Re in its report, ‘Climate change and commodity price trends: New cover concepts in agricultural insurance.’
Carbon dioxide trading has now almost evolved into an international liquid market, the report says. “From the agricultural insurer’s point of view, all renewable commodities that qualify for CO2 certificates remain insurable against standard risks,” Partner Re says.
“CO2 accreditation will increase the insured value of a crop (i.e. the sum insured for frost, fire, hail or drought is the CO2 contract value plus the commodity price).”
Since the price per ton of CO2 fluctuates considerably, annual fixed commodity prices should be agreed for insurance purposes, it continues.
Parametric covers have also been successfully employed to manage precipitation, flooding, accumulated temperatures and frost risks in agriculture, Partner Re suggests.