Are Insurers Ready to Insure Organic Crops?

As a rule, insurance companies do offer insurance coverage specifically for organic crops. However, insurers and farmers face several problems related to crop insurance.  Organic farming can potentially lead to lower yields, due to the inability to use synthetic pesticides and fertilizers. It creates some controversy within classic crop insurance practices.  It is difficult to include more widely diversified organic farming in a crop insurance system that was largely built on insuring conventional types of field crops, and that largely defines success and failure in terms of crop yield and revenue. For organic farmers, by contrast, success also includes other values and goals, such as improving soil quality, increasing biodiversity, and enhancing the environment. In such a case, the level of insured yields is usually lower than for conventional farming.  For example, in the USA, if a farmer does not have an individual yield history for organic crops, they can be offered insurance for the area yield level for standard crops but reduced by 35%. 

Moreover, underwriters in insurance companies possess limited information regarding organic farming practices and how they are related to crop insurance.  Many agents of insurance companies do not know as much as they would like about organic production, and do not feel comfortable or well-prepared enough to work with organic growers. At the loss adjustment stage, the parties of the insurance contract may face the problem of interpreting good farming practices, violation of which is the reason for diminishing the insurance indemnity or even  decline in the compensation.  Clear cases of failure include things like using insufficient amounts of seed or fertilizer, grossly underwatering an irrigated crop, or allowing weeds to take over the field.  What this means is that insurance adjusters and outside experts decide if it is such a failure or not, and not the farmer.  However, there are many grey areas. The complexity and integrated nature of an organic production systems means it can be difficult for an adjuster to judge whether a given organic farm is using good farming practices, unless they are intimately familiar with the operation.

One more problem is that insurance companies usually experience higher loss ratios from insuring organic farmers compared to standard clients. It can be explained by the lower participation of organic agriculture in crop insurance, hence, a higher adverse risk selection. Moreover, growing a more diverse selection of crops can bring additional risk of failure depending on the variety, hence, more potential losses to the insurance company.   And finally, organic farms have a higher produce yield than conventional farms, and horticulture and viticulture is more vulnerable to climate risks compared to field crops, that makes insurers increasingly reluctant to insure it. In addition, it is difficult to verify sums insured based on market prices from liquid markets of conventional crops. Organic food is more expensive; therefore, an insurance company should consider the higher price of crops.  Instead, its verification is often just to follow the contract price between a farmer and their buyer. It means, that the exposure (maximal loss) per one hectare in organic farming can also be higher.