Some advice for farmers who already have crop insurance and for those thinking of getting one.
Adverse weather conditions are common companions in our lives. It is difficult to predict weather conditions, even if there is a long experience from the past. Global climate change and the probability that bad things may always happen lead us to thinking about how to insure this uncertainty.
The following text is our message to the farmers who already have crop insurance and those who are envisaging to buy an appropriate product.
First of all, why do I need crop insurance?
In the practice of farming risk management, there are several tools for dealing with weather risks, in particular:
Is this enough to be sure that I, as a farmer, will have guaranteed yield and financial results?
Of course, not.
The best irrigation technologies and moisture saving practices will help to prevent or mitigate the loss, but, unfortunately, not in full. It is like in aviation, where people care for the utmost safety of flights, but there are still parachutes and oxygen masks on board.
Some farmers rely on the strategy to compensate losses of bad years by the yield surplus of good years. However, such practice is getting more and more problematic, as we are facing more often than before consecutive bad years (e.g. 2018 and 2019 in Poland and Lithuania). Sometimes there are even three bad years in a row. Imagine!
Moreover, such a self-retention strategy for losses requires actually more money than buying insurance. You, as a farmer, can say “I will no longer buy a new Range Rover right now, as I have to freeze my funds to cover my loss caused by the next drought”.
In some CEE countries, farmers do not have a long-term risk management strategy and live just as they are, despite facing a lot of risky situations. If you really think to sell your farming business at any time, the value of your company will be much higher, if there is a stable annual cashflow that is supported by an effective crop insurance policy.
And let’s not forget about your health! A farmer sleeps better when he has an appropriate insurance policy, he feels much safer, especially if his cover is provided by a recognized insurance company, who cares for long-term relationship.
Find the right insurance company
You can trust your partner after you have made a thorough check. It is true that there are sometimes complaints about insurance products and companies. But on the one hand people tend to speaking 10 times more about bad experience than about positive events. On the other hand, mistrust can be a result of misunderstanding. First of all, we recommend to our farming clients to understand who their insurers really are.
Some points for you to consider and to ask your insurance agent:
Realize the gaps in your coverage
The second thing suggested by us is that you understand your insurance cover.
In CEE/SEE markets it is difficult to find the ideal crop insurance. Due to the nature of agriculture itself, detecting the ideal insurance solution is generally not easy. But there are some insurance markets that reach some level of excellence thanks to their long-time tradition of public and private partnership in agriculture. However, they do not work in most cases for Central and Eastern Europe … We hear very often from European insurers about their “low risk appetite”!
Our checklist to investigate your coverage is as follows:
If you are just starting with crop insurance, we also advise to make historical simulations of pay-outs – how much indemnity would you have received if you had had this crop insurance contract in the past, i.e. when your loss had really occurred?
However, please be aware that in a short-time perspective you always pay for insurance more than you may get back in loss payments. But think of the fact that the insurance premium has to contain reserves for the probability of catastrophes and a possible deviation from short-term (10-15 years) statistics. Some new losses might occur on your farm, that you did not experience in your past farming history. Moreover, the climate change trend is not quite optimistic and, as a rule, does not lead to expectations of better yields…
If something is not possible to insure (lower deductible, higher limit, a specific peril, early risk period etc.), keep in mind that some gaps in the coverage can be eliminated by alternative risk transfer solutions, like parametric insurance, weather derivatives and captives.
Mind the insurance wording
You are definitely right that insurance wordings are boring and difficult to read, but “the devil is in the details”. When it comes to the big loss, all such details will be relevant.
Please, be careful with the following clauses of insurance wording:
Find the right partner to help
And last but not least: Never be alone! Find the third party who can help you in case of any problem with insurance products or insurance companies. You can ask for the help of the professional broker, as he is highly skilled and experienced in respect of insurance wordings, he thoroughly knows the insurance markets and he has developed good working relationships with crop insurance risk carriers.
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Adriana Cavescuone
Account Manager
Food & Agriculture
T+40 21 302 24 09