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What does the future hold for climate insurance?

 

The floods and hailstorms that marked the summer of 2016 led to insurers paying out €820 million in compensation to farmers affected by these events. Unfortunately, only 25% of the land used for arable farming and viticulture was actually insured.

What does the future hold for climate insurance?

In response to this situation, the French Ministry of Agriculture requested the creation of an inter-ministerial task force: the Advisory Board for Food, Agriculture and Rural Areas (CGAAER) and the Inspectorate-General of Finance (IGF). In the spring of 2017, this mission published its report on “Risk Management Tools in Agriculture” and on this occasion, it proposed to take stock of the vulnerability of French agriculture.

When this report went to press, the experts considered that it was still too soon to evaluate the success of the core policy, also referred to as “hardship insurance”, established in 2016. Nevertheless, we believe it is important to highlight some of their proposals:

Establish a mutual income stabilisation fund

As a priority, the interministerial task force proposes to establish precautionary savings mechanisms, including a compulsory savings scheme financed primarily by taxing a proportion of the basic payment entitlements (droits à paiement de base - DPB). The basic payment is one of the three components of the subsidies established by the French government since 2015 in order to replace the decoupled aid scheme (DPU), which operated until 2014.

With all farmers required to subscribe to the scheme in which 5% of the basic payment entitlements is levied, this fund could be allocated around €400 million per year.

Incorporating prevention into the calculation of premiums

Certain insurers do not take account of the possible existence of specialised prevention equipment (e.g. heating systems to combat frost or stocks of water for irrigation), due to uncertainties about their use. The experts have encouraged insurers to increase their cooperation with equipment manufacturers. The task force proposes that the insurance subsidy should be dependent on the adoption of prevention measures.

Insuring grasslands

Grassland insurance is only offered by certain insurers such as Pacifica, which launched the solution in France in 2015. However, risk pooling could reduce the cost of the premiums. In 2016, the ratio of the total cost of the claims to the total amount of the subscriptions collected (S/C) for grassland insurance was significantly lower than the ratio for comprehensive climate insurance.

Encouraging farm insurance

Estate or farm policies have met with little success outside the wine-growing sector. However, risk pooling for several crops can reduce the premiums.

The report’s recommendations include reducing the minimum insured farm surface area to 70% instead of the 80% that applies today.

Taking drastic steps

If agricultural insurance does not become more widely adopted, the task force proposes the adoption of a “Spanish-style” system in which the granting of public subsidies (basic payment entitlements) and setting-up aid would be dependent on the farmer being insured (same as for the conditionality of direct subsidies and setting-up aid). The State could also envisage the regulation of prices, as is the case elsewhere (Italy, Poland, and the United States), and/or the capping of prices for sectors in which insurance is currently and proportionally the most expensive, such as arboriculture.

In addition to this mission, on 10 October 2017, the French Agricultural Board (CAF), which brings together French agricultural organisations, held a national conference on the insurance of climate risks concerning crops and grasslands. The discussions between public authorities, organisations and stakeholders in the agricultural sector (French Federation of Farmers’ Unions (FNSEA), Young Farmers, Chambers of Agriculture, Groupama, Crédit Agricole and Coop de France) contributed to improving the understanding of how insurance works, the strategies to be adopted according to the risk profile of each farm, and the medium-term challenges for agricultural risk management issues.

For Crédit Agricole and Pacifica, the aim was to send out a strong message to representatives of the profession on the urgent need to take out insurance in order to safeguard the long-term future of farms in the event of extreme climate events.

25,000 policies
Pacifica the general insurance subsidiary of Crédit Agricole Assurances, proposes a comprehensive range of climate insurance policies for farmers (insurance against weather-induced damage to arable crops, fruit, vines and grasslands). With around 25,000 policies, its “Climate-risk insurance” portfolio has doubled in three years and boasts the fastest-rising performance on the market for this product range.

Meet Head of Pacifica’s Agriculture and Prevention market, who will be presenting the Grassland Insurance solution and its new “Inability to harvest due to flooding or excess water” coverage, at the French Agriculture Show. 

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