Swiss Re study shows potential in agricultural insurance

Agricultural insurance schemes can provide more economic security to the agricultural community and support the sector’s development, according to Swiss Re.
Agricultural insurance is largely underdeveloped, even though agriculture remains a key sector in many emerging economies. Emerging market economies continued their strong growth in 2005, despite rising global interest rates and commodity prices.
According to Swiss Re’s latest sigma study, “Insurance in emerging markets”, both life and non-life insurance premiums registered further gains, of 7.5% and 6%, respectively, in real terms.
Agriculture is one of the most important economic sectors of emerging markets. A properly-designed risk management system is essential for protecting farm operators and reinforcing rural development. Existing agricultural insurance regimes in emerging economies, however, show a mixed record: some schemes suffer from low insurance penetration and weak underwriting performance, due to high administration costs or adverse selection. Total premiums were estimated at around USD 1.1 billion in 2005.
Trade liberalisation and the shift from subsistence farming to commercial farming point to higher sophistication in farm production and hence higher investments. These will heighten the need for agricultural insurance.
Agricultural risk management strategies articulate the complementary roles played by public disaster relief and private insurance support.
Public-private partnerships can create an environment that is more conducive to agricultural insurance.
Government efforts to improve rural financial infrastructure and weather data collection, for example, can facilitate insurers’ access to potential clients and support their underwriting activities.
The volume of emerging market agricultural insurance has the potential to reach the USD 10 billion mark if governments and insurers become more proactive. USD 10 billion will be commensurable with the insurance penetration levels seen in more developed markets.