GrECo lecture at German GVNW Symposium in Munich

Georg Winter and Andreas Krebs showed in their lecture at the GVNW the newest details on the economic consequences of the war and the cut-off of local insurance markets in Russia, Ukraine and Belarus

Following a very successful webinar held by GrECo Holding in April this year, GrECo was again invited by GVNW – the leading association of insurance buyers in Germany – to give insight and information on the war situation in Ukraine and its implications for local and international insurance coverage. After pausing for two years due to Covid, the conference was organized as an in-person event with a participation of about 800 persons, all insurance specialists from big industrial clients, insurers, brokers and other annexe professions. The main topic of this German-speaking event was the perspectives in connection with the oncoming contract renewals and how to tackle problems like disruptions of supply chains, inflation, the war in Europe, climate change and ESG, to mention the most important issues.

Georg Winter and Andreas Krebs showed in their lecture to a breakout group of about 100 participants the newest details on the economic consequences of the war and the cut-off of local insurance markets in Russia, Ukraine and Belarus. They relied on reports received from GrECo and MAI colleagues in the countries concerned, which made this report more direct in its vivid description of how the markets work with the focus on maintaining insurance services despite the setbacks and difficulties caused by war operations, sanctions and disruption of international insurance.

In their conclusion, both GrECo speakers pointed out that a general exclusion of the territories of Russia, Ukraine and Belarus from coverage, as is suggested by some international insurers, is hard to understand and, in most cases, not justified. There can be no doubt that insurance is not possible for activities and goods that are underly sanctions as well as for risk locations in war zones, but most businesses are not immediately affected by the military conflict.

There has been a lot of positive feedback from the audience during and after the lecture. This incentivizes us to continue its permanent observation of those markets and provide clients and partners with substantial and original information.


Ukraine war – effects on your corporate risks

In view of the rapid developments in the war between Russia and Ukraine, GrECo Holding has set up a Task Force responsible for gathering all information on the current crisis and for reactions in all fields of our activities.

We will provide information on all topics and developments linked with the situation on our website for the information of clients and partners.

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Petra Steininger

Head of Group Communications

T +43 5 04 04 – 175

How do Food & Agriculture companies insure their plants abroad?

International Insurance in Agriculture

Multiple positive benefits come with international insurance programs.

International or Local Insurance?

When an enterprise has a wide range of operations in more than one country, a convenient form of insurance ensures the entire enterprise, together with foreign entities, in an international program.

This is a fitting solution for companies with subsidiaries, commercial agencies, warehouses or production plants abroad.

Advantages of the international programme?

Multiple positive benefits come with international insurance programs.

They allow for controlling the scope of coverage and the cost of insurance from the level of the parent company by one person responsible for the risk or insurance. It is easy to obtain a homogenous and possibly the broadest scope of insurance coverage for the entire company without leaving any gaps. International programs usually mean higher limits and broader protection than those locally available for individual companies or plants.

Thanks to their wide scope and uniform structure, international programs come with a lower premium. This is not always guaranteed, but in most cases, the premium is lower than one negotiated with many different offers for individual companies/subsidiaries.

The conclusion of an international program allows a higher level of deductible. A group of companies, acting as a whole, can retain a higher share than a single entity. The higher risk levels remaining with the client, the smaller share of risk transferred to the insurer and the lower the final premium.

In the international program, people responsible for risk or insurance have access to all claims data, which allows for better analysis of causes and minimization of unacceptable risks. Finally, control over claims also means more effective claims handling by insurers.

However, there are several elements where international programs will not always be sufficient, and a better solution would be insurance taken on the local market. For example, there are risks exclusive to one company which do not exist at a group level (e.g. crop insurance). Also, we should not forget insurance that requires local service (e.g. health or accident insurance for employees).

As seen above, from the parent company’s point of view, international programmes have many advantages but do not always cover 100% of the risks associated with the activities of local companies. Therefore, the best solution is to combine both insurances. Use an international programme for those risks and assets managed at the group level and attach local policies (to the extent that the programme does not offer full coverage).

Based on this assumption, the best solution for the client will be to use the professional assistance of an experienced broker in both the development of international programmes and with a good understanding of the local market in the many countries where he actively works. GrECo is such a choice.

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Zsolt Varga

Practice Leader
Food & Agriculture

T +36 20 292 33 73

35 ways to improve crop insurance

A farmer who already have crop insurance and for those thinking of getting one

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:

  • use of weather forecasts;
  • application of irrigation systems;
  • technologies of minimum tillage;
  • use of more drought-resistant varieties / hybrids;
  • diversification of crops, varieties / hybrids, growing regions, sowing dates;
  • external borrowing, government support, aid from friends after a damage has occurred.

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:

  • Who is the shareholder of the insurance company?
  • How long do they exist?
  • Who reinsures the risks of damage to your crops?
  • How much will the insurer really pay from his own account in case of a catastrophic weather event, i.e.  when the other farmers will also suffer loss?        
  • What was the ratio between collected insurance premiums and payments in the past?
  • How many people with agronomic education or practical experience in agronomy work in their staff?          
  • How many crop insurance contracts do they have in their portfolio and how many insurance claims were made?        
  • Are there any substantial loss payments per single claims?  
  • Are there any farmers who received significant payments and can recommend this insurance company to you?

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:

  • Is the sum insured high enough to cover potential loss? 
  • How is the yield to be insured defined?
  • When does the coverage incept and end?
  • How fast will my crops be admitted for insurance?
  • Are there any additional indemnity limits?
  • How is the yield loss estimated?
  • What is the methodology of calculating the predicted harvested yield?
  • Are all my production perils covered? 
  • How high is the deductible?
  • How is the deductible applied (per field, per loss, per crop, per farm)?
  • Are there any additional franchises or deductibles?
  • Are all my crops covered?

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:

  • Is your insurance contract really complete with all wordings? It may happen that some insurance terms & conditions are not provided to you for your consideration. They might contain additional exclusions from insurance coverage, as well as other clauses of significance, like special warranties.
  • There should be no contradiction between single wordings. Otherwise you need an additional clause that clarifies which stipulation is the right one in a given situation.
  • Is there a right of the insurer to terminate the contract unilaterally during the contract period?
  • What are the definitions of the insured risks?
  • How is the stipulation in respect of change in risk during the policy period?
  • Is the methodology of loss estimation fully documented and clear? 
  • Are all documents and additions related to the insurance contract (incl. crop survey protocols) signed by the authorized people?
  • Is the insurance company obliged to leave an original copy of any crop/loss survey report at once on the farm?
  • Is there any deadline stipulated for crop surveys after the loss has occurred?
  • Is the farmer allowed to leave some samples for an alternative expert opinion?
  • How does the “gross negligence clause” look like?
  • What are the deadlines for the insurer’s right to postpone their decision on claims payment?

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

Adriana Cavescuone

Account Manager
Food & Agriculture

T+40 21 302 24 09

“I just fell into the world of insurance!”

Natalia Zaborovska

An interview with Natalia Zaborovska, Group Head of International at GrECo, about the new international strength of the merged companies GrECo and MAI.


Tell us something about your career path?

Like many people in our industry, I just fell into the “world of insurance”. For my diploma thesis, which was on an insurance topic, I approached an insurance company. As fate would have it, they were looking for someone with very good English skills. So, I did not only find information for my degree, but I also found my first job. I was invited to join MAI in 2000 when the company was just starting its expansion. I was appointed Head of International at MAI.

What are your plans as the new Group Practice Leader International at GrECo?

The first step for me is, of course, to get to know GrECo’s international structures and practices. It is important to find out where the strengths lie and what can be improved to achieve even better results and more efficiency. Then it’s a matter of bringing together the international practices of the two companies into a best practice and defining the strategy to ensure sustainable first-class service for global companies.

What will be the biggest challenges?

My big priority is to generate a recognised and shared recipe for success for all employees from both companies and a new group spirit in working together. As we have learned in the past years, companies have to adapt to various external challenges. We have lived through pandemic times and learned to do business and even acquisitions via Zoom, MS Teams and other electronic media. The world is constantly changing, and so are we. That is why we need to be open-minded and adapt quickly.

You live in Australia but come from Latvia. How did that come about?

The story is quite simple – I fell in love here and got married. In my role, it doesn’t matter where I am, as my teams and my partners are based all over the world. But I’m already looking forward to my first trip to my family in Riga and my new colleagues in Vienna, as soon as the pandemic makes it possible.

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Natalia Zaborovska

Natalia Zaborovska

Group Head of International

T +372 5824 3096

Spotlight on GrECo Romania

GrECO Romania

Headquartered in Bucharest, GrECo Romania opened a second office in Cluj Napoca in 2013, strengthening its presence in areas receiving the most direct foreign investment in the country.

The foundations of the Romanian subsidiary date back to 1995, a period when the local insurance structures started to adopt market economy principles. Since then, GrECo Romania has been an important pillar in
the development of GrECo Group in Central and Eastern
Europe region.

Headquartered in Bucharest, GrECo opened a second office in Cluj Napoca in 2013, strengthening its presence in areas receiving the most direct foreign investment in the country. For more than a decade, the company has experienced a steady and constant market development, servicing both international and local corporate clients across Romania. In line with the Group’s specialty strategy, teams of experienced local specialists are servicing clients from all industries. Their main focus, however, is on Financial Institutions & Leasing, Construction & Real Estate, Food & Agri, Transport & Logistic, Financial Lines, Trade Credit & Bonds.

In 2021, GrECo Romania placed a total of 37 million EUR in premiums for its almost 5,500 clients with over 41,000 policies.

GrECo’s accurate and complete insight, their proactive advice and correct understanding of our insurance needs makes all the difference. From risk trends and coverage enhancements up to regulatory developments, we benefit from the added value of our strong partnership with GrECo: They continuously optimise our protection standard and risk costs in this challenging environment.

Razvan Nedea
Head of Supply Chain and Trade Finance at BCR

Facts & figures – Romanian insurance market

The Romanian insurance market is oriented towards general insurance (82% of total written premiums in 2021), while life insurance has experienced steady growth in the last years. In 2021, the total written premiums went up by 24% to a value of 2.8 billion EUR.

The non-life insurance market is dominated by car insurance with a share of 76% registered in 2021. The broke age market has grown by 26% in 2021, resulting in an intermediation degree of more than 80% for non-life insurance. The military conflict between Russia and Ukraine at the beginning of 2022 introduced new challenges to the market. Many state economies will be facing new risks on their road to recovery and consolidation after the Covid-19 pandemic.

We are deeply satisfied with the services and pricing GrECo provides to our business insurances as well as our personal insurances. GrECo´s experts are always there to deep dive into our requests and show up with multiple options which we can tailor to our needs!

Bogdan Stan
Country Manager Weerts Romania

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Is the insurance cover sufficient? Dealing with the agricultural drought

Agricultural drought insurance

Drought is one of the main problems of agriculture and requires a fairly developed risk management system in any society. In the CEE / SEE region, many countries are at an early stage in effectively managing the risk of drought.

Drought is one of the main threats affecting the entire food supply chain. It is catastrophic as it can at some point spread over vast territories in many countries, leading to extensive crop shortages.

According to the research done by the Food & Agriculture Organization of the United Nations, the share of agriculture in losses caused by the drought is 83%.

What is agricultural drought, and how to identify it?

According to EDO (European Drought Observatory), droughts are commonly grouped into three basic types: meteorological, agricultural and hydrological. Meteorological drought is a period with an abnormal precipitation deficit concerning the long-term average conditions for a region. When a meteorological drought leads to a soil moisture deficit that limits water availability for crops, the result is an agricultural drought. Hydrological drought is associated with the effects of periods of shortfalls of precipitation (including snowfall) on a surface or sub-surface water supply (i.e. streamflow, reservoir and lake levels, and groundwater).

Governments use various mathematical indices to mobilize drought loss prevention and financing measures. The most popular drought index for drought definition, recommended by the World Meteorological Organization, is the Standardized Precipitation Index (SPI). This index calculates the difference between the actual rainfall and the average 30-year parameter over a specified period, divided by the standard deviation coefficient. SPI has the advantage of distinguishing a particularly flawed year from others. However, other factors (temperatures, soil types, wind speed, yield density, etc.) are not taken into account. This means that SPI is adequate for identifying meteorological but not agricultural drought.

How to predict potential losses?

Our experience in CEE / SEE with the data of individual farmers shows that drought causes yield losses comparing the average of the previous five years at the level of 20-40% for winter crops and 30-60% for spring crops.
As for the macro level, official statistics record losses of 20-30%. In the Panevezys region of Lithuania, for example, high temperatures combined with a moderate rainfall shortage in April-May 2018 were quite catastrophic for cereals and oilseed rape. In 2021, we saw a fairly rainless July-August, leading to poor results for spring crops, especially late varieties (corn, beans).

When a drought starts, it is helpful to know how much yields can be lowered to enable further risk prevention and cost minimization by all stakeholders in the food supply chain. A detailed effort is dedicated to developing high-accuracy yield prediction models at various stages of crop development.

For example, the Land and Water Division of FAO (Food & Agriculture Organization of the United Nations) has elaborated AquaCrop. This special holistic yield prediction model takes into account 4 groups of factors: climate parameters (eg. rainfall, maximum and minimum air temperatures), crop parameters (phenology, canopy cover, rooting depth), soil parameters (soil profile and the characteristics of the groundwater) and the crop growing management.

Providing drought loss mitigation measures

The IDMP (Integrated Drought Management Program) of the World Meteorological Organization suggests many measures to mitigate the effects of drought in the short and long term periods. Emergency action and financial recovery must be taken if this is not enough to mitigate losses.

For example, the summer of 2018 recorded very high temperatures, which caused droughts that affected agricultural production heavily (e.g. arable crops and animal feed) in many EU countries. The European Commission has activated several measures and derogations at the request of many Member States. Farmers in Europe faced more or less support from the national public authorities, each managing the crisis depending on its intensity but, depending on its financial capacity, exposing each farmer to significant disparities in treatment.

On 15 August, the federal government in Berlin passed a motion that allowed German drought-hit farmers to grow animal feed in ecological focus areas (EFAs). Farmers were allowed to grow a mixture of crops for feed purposes on EFAs. As for the share of private insurance, only 5,000 hectares in Germany were covered against the drought!

What private crop insurance against drought do you need? How to make it more effective in CEE/SEE countries?

At first glance, the above examples of ad hoc government activities seem like a good way to finance negative financial outcomes. Still, governments face an additional unexpected burden on the state budget and a lack of verification of the application of crop yields by farmers, leading to the ineffective public money spending. Hence, private insurance can be a way to better finance losses.

11 CEE / SEE countries became EU members in 2004-2013, following the CAP (Common Agricultural Policy), which also means subsidizing private agricultural insurance. However, the drought is poorly insured or not insured at all. Even though drought insurance is offered, there are many restrictions applied by insurance companies in terms of high deductibles, compensation sub-limits, types of crops or insured regions, etc.

Why is such a “low-risk appetite”? First, crop insurance was introduced into the CEE / SEE region by German, Italian and Austrian insurers who focused mainly on the risk of hail. Before the 2018 drought, farmers and insurers hardly anticipated the need for such protection. As a result, there is a lack of extensive experience of insurance companies in assessing the risk of drought and loss adjustment. Moreover, it is technically challenging to deal with drought loss precisely and quickly. This has a cumulative effect on large areas that require a good network of highly skilled claims experts.

At the same time, the drought is a very catastrophic threat that can exhaust the collected insurance premium for many years ahead. To ensure such a risk, an insurance company needs a sustained and waste risk portfolio to reduce the volatility of expected losses. This can only be achieved through decisive government intervention in the development of crop insurance.

Strong cooperation between the government, agricultural associations and the private insurance market (Public-Private Partnership) should create the most favourable drought insurance conditions for all interested parties. Farmers want to be well insured at the best price. The government wants financial relief on the state budget and effective targeted assistance for farmers. Insurance companies want a stable portfolio with long-term profitability.

In addition, drought insurance should be available to farmers, meaning that the government has to subsidize the insurance premiums and participate in the reinsurance loss layers. Moreover, crop insurance should be the precondition for the farmer to obtain other financial assistance. In many countries, such a measure is not so popular as such compulsory insurance can be considered a new hidden tax. However, in countries with developing insurance markets and a low insurance culture, it is a necessary step to establish a robust drought risk insurance mechanism.

Last but not least, the government should set strict conditions on when and to what extent it engages its resources in financial aid after the drought. Measures should be predetermined as a drought crisis response plan, but it does not look chaotic. On the other hand, a clear understanding of when and how the government is involved constitutes a  strict line between recovery of losses from public finances and the private insurance system. As far as EU members are concerned, such activities should follow EU directives stating that government intervention should not cause unequal opportunities in agriculture between EU countries.

Parametric insurance comes into play if traditional approaches fail

Parametric or index insurance compensation is paid when the actual index (parameter) value meets a condition (trigger), compared to conventional crop insurance which compensates for a direct crop loss. The most frequently used indices (parameters) in such insurances are weather data (rainfall, temperature, soil moisture, etc.) or official statistics for surface yields. As a rule, parametric insurance is applied for risks where standard insurance does not work or the risk appetite of conventional insurers is quite limited. Drought is such a case!

In the CEE / SEE countries, such an alternative drought risk transfer tool is getting more popular among farmers, agricultural inputs suppliers and food processors. It is simple to understand, requires less paperwork, and implies fast payouts. However, there are still several challenges hindering the development of parametric insurance in the CEE / SEE region.

Drought is one of the main problems of agriculture and requires a fairly developed risk management system in any society. In the CEE / SEE region, many countries are at an early stage in effectively managing the risk of drought. In particular, CEE / SEE governments should pay more attention to the development of private drought insurance. On the other hand, new innovative risk transfer tools such as parametric insurance could be considered. Ultimately, given the large budget gaps caused by COVID and the crisis surrounding Russian military aggression, are governments again ready to compensate farmers for the heavy losses caused by the drought?


This article is a part of our Foodprint publication focusing on issues and risks facing the Food & Agriculture industry. Read the publication and learn more about insurance solutions and the growing importance of risk management and alternative solutions like parametric insurance.

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Kalchev_Hristo

Hristo Kalchev

Account Manager

T +359 2 423 33 22

How to insure the uninsurable? Parametric insurance and its practical application

How to insure the uninsurable? Parametric insurance and its practical application

How can an entrepreneur, whose production is grain dependent and the raw material prices have a fundamental importance in his economic calculation, find himself in this situation? Fortunately, if the risk we want to protect is somehow related to future and uncertain events, such as weather conditions, it is possible to design insurance covering this risk.

Every entrepreneur in his activity accounts for the risk of delays and lack of supplies that hinder or prevent production. The reasons for such conditions may be manifold. Some are typical for insurance risks (fire, flood, theft, IT system failure), and others have a more complex cause (e.g. bankruptcy of a key supplier, change in raw material prices). While securing the risks from the first category is quite common and does not pose any problems, the latter is typical risks related only to running a business, and standard insurance does not cover such events.
 
In the food industry, raw materials prices for production (most often agricultural products) during the year often and significantly deviate from the contract prices established when concluding a supply contract and estimating production costs. While the reduction in prices, occurring rarely and to a small extent, has a positive impact on the producer’s margin, the upward shift is a significant impact on the profitability of production of such enterprises as, for example, mills, feed processing plants, oil producers, meat plants. You might think that the profitability of any production activity is heavily dependent on the prices of raw materials, but for agricultural produce, price volatility can surprise even very experienced entrepreneurs.

Necessary Conditions for Parametric Insurance

Agriculture is a specific activity in which the productivity and effects of work depend on weather conditions. The more unusual the conditions are, e.g. prolonged winter, cold spring or dry and hot summer (recently observed due to progressive climate changes and the accompan
ying weather anomalies occur more often), the greater the negative impact on crops.
 
On the other hand, increasing globalization, also in agricultural markets, means that the situation in the local market may not have much in common with the current situation in a country. In many cases, global events have a dominant influence on the valuation of raw materials. Crop shortage occurring in globally exporting countries, associated with a smaller supply of grain in the market, affects prices everywhere. This is the situation in 2022. The poor harvest of cereals in the largest producers and exporters – Canada, Russia and the USA – caused an increase in prices on world exchanges. Increases by over 30% y / y are amplified by speculative actions of investment funds, which, not surprisingly when analyzing the market situation, buy consumer cereals for later resale. Seeing the sharp price changes, local individual farmers refrain from selling their production, counting on a higher price within a few months.
 
While crop shortages occurring locally, e.g. in one country, can be compensated by importing raw materials (cereals, corn, soybeans) from abroad, there is no simple alternative when the problem concerns a larger area. We had to deal with this situation this year – an additional element that made it impossible to supplement the shortages of raw material were sudden weather phenomena in Europe during the summer. In 2021, the number of hailstorms doubled the number of hail falls recorded in 2019, which has, so far, been the most violent period in the history of measurements. In addition highly increased the number of hailstones of the largest sizes, above 5 cm in diameter.

The main reason for the increase in prices was the lower cereal yields in the Northern Hemisphere, which resulted from weather factors. Cold and wet spring delayed plant vegetation, while the following hot and dry summer significantly reduced cereal development and the formation of appropriate grain quality. All of this resulted in a drastic reduction in crop yields and a supply deficit in the grain market, leading to increasingly higher prices.

Rescue in Parametric Insurance

How can an entrepreneur, whose production is grain dependent and the raw material prices have a fundamental importance in his economic calculation, find himself in this situation? Fortunately, if the risk we want to protect is somehow related to future and uncertain events, such as weather conditions, it is possible to design insurance covering this risk.

Assuming that the main factor we fear is drought (which is not local and most often covers large areas) and standard crop insurance is not available for producers other than field farmers, the solution is index (parametric) insurance. Parametric insurance is the optimal solution in many cases reluctantly accepted by insurers as part of standard solutions, e.g. the risk of drought for crops on poor-quality soils or spring crops.

Regardless of which parameter we take as the basis, the condition for triggering liability is the change of this parameter resulting in a decrease in the insured’s income or profit. The parameters for constructing an insurance index may vary, but each of them must have the following features:

  • Clear definition: a specific indicator, e.g. the number of days meeting certain conditions for weather parameters (rainfall, temperature).
  • Independent from the policyholder / insured: the client should not influence the measured parameter value, and the weather parameters are the best solution.
  • The parameter’s value should be available from an independent source: In this way, we ensure the reliability of the data and the possibility of its verification by all parties to the contract. For this reason, the weather data from the state meteorological service is the most appropriate for your insurance needs. In some cases, a parameter from local customer-owned weather stations is allowed. However, this requires verification to what extent the indications of this station are consistent with independent data in the long term.

Parametric Insurance in Practice

An important feature of parametric insurance is also the simplicity associated with the conclusion of the contract and its service (loss adjustment). In the case of weather parameters, the risk is estimated based on historical data, and the amount of information requested from the customer is limited. For this reason, this type of insurance is ideally suited to simplified sales models, e.g. through applications, even mobile. It is possible to structure the offer so that the client, also through the application, finds out that the risk occurred and he is entitled to compensation. He can report the claim with one click, and the payment is automatic.

In the case of a cereal processing company under consideration, drought risk affects the raw material prices the most. Therefore, the insured parameter could be the number of rainy days in the insurance period. Like rainy days, we can define those days with rainfall of min. 0.5 mm. In such a solution, compensation will be due if the number of rainy days (with rainfall above 0.5 mm) in the insured period is lower than the established limit, which means the risk of drought is more likely.

Parametric insurance is the best solution for a processing plant that expects protection against the risk of changing prices of the raw material or even a lack of supplies. In many cases, it is the only one available to the client whose needs are so non-standard not fulfilled by typical insurance available on the market. Thanks to the compensation from the index insurance, the client obtains additional funds for the raw material purchase at a higher price than the existing suppliers. The client also has the opportunity to purchase grain on the free market at current prices or may cover losses if it is not possible to buy it.

A similar insurance model may also apply to clients operating farms, who also experience price changes. A higher purchase price of grain means that in the next season, the cost of purchasing seed material will be much higher because the price of the raw material accompanies proportionally higher costs of storage and seed treatment. By using insurance based on the client-farmer index, the client-farmer gets the opportunity to compensate for losses caused by risks not be covered by the standard insurance, or its conclusion would depend on many factors that are not always influenced by the client-farmer (e.g. cultivation in a field with appropriate valuation class, reaching the appropriate stage of development by plants before the beginning of the insurance period).

As can be seen in the above examples, index insurance offers the possibility of protection in those situations where standard terms and conditions and standard insurers cannot help the client. Index insurance has multiple development opportunities if we consider the impact of climate change on agricultural activity, related uncertainty and the inability to use the standard insurance offer. Although due to their different structure, they may seem complicated, from the perspective of the ease of their conclusion and handling (claims settlement), they are a unique alternative to standard insurance.

This article is a part of our Foodprint publication focusing on issues and risks facing the Food & Agriculture industry. Read the publication and learn more about insurance solutions and the growing importance of risk management and alternative solutions like parametric insurance.
 

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Chojnacki Jacek

Jacek Chojnacki

Practice Leader
Food & Agriculture GrECo Poland

T +48 609 600 960

Choosing the right risk management strategy in Food & Agriculture

Risk Mapping analysis performed by a young man

The most challenging thing about risk mapping is risk assessment. For example, how to determine the maximum loss from a crop shortfall? Risk mapping is a good starting point for implementing a holistic approach to risk management for any company and a suitable guiding star for optimizing insurance costs for maximum efficiency.

In the ocean of uncertainty

Risk managers often ask themselves what to insure first. Between cost and potential benefit, what should we choose? Depending on the combination of frequency and severity, the enterprise decides:

  • Transfer the risk to, for example, an insurance company
  • Retain the occurred loss
  • Avoid the risk
  • Reduce the frequency of losses.

Food & Agriculture customers use the methodology developed by us to map 100 insurance risks, divided into 12 categories:

  • Commercial property;
  • Property in construction;
  • Stock;
  • Software;
  • Money;
  • Business Interruption;
  • Crops;
  • Livestock;
  • Transport;
  • Transport Liability;
  • The other liabilities;
  • Personnel.

A Risk Map is a graphical depiction of a select number of a company’s risks designed to illustrate the impact or risk’s significance on one axis and the likelihood or frequency on the other. Risk mapping assists in identifying, prioritizing, and quantifying risks to an organization. This representation often takes the form of a two-dimensional grid with frequency (or likelihood of occurrence) on one axis and severity (or degree of financial impact) on the other axis; the risks that fall in the high-frequency/high-severity quadrant get priority risk management attention.

For each category, we analyze risks as follows:

  • Frequency level;
  • Severity;
  • Insured or not;
  • If you plan to insure within 12 months:
  • Estimated maximum loss.

    There are five organizational steps to making a risk map:
  • Appoint a risk committee / responsible team;
  • Define risk;
  • Identify the risks;
  • Assessing risks;
  • Prioritization matrix.

The most challenging thing about risk mapping is risk assessment. For example, how to determine the maximum loss from a crop shortfall? Do we need to account for one growing season with poor productivity, or do we account for a 3-5 year cycle during which we need to estimate the total yield loss? How do we account for the inverse correlation between crop yields and agricultural commodities prices, which is high for crops in some regions? What about a negative global warming trend, on the one hand, but improving agricultural technology and productivity, on the other? Estimating the frequency and severity of losses is also challenging for cyber risks. How can we assess the loss in the event of business interruption for non-property damage? Sometimes it takes time for a company and its consultants to develop the correct methodology and gather enough information.
 
Risk mapping is a good starting point for implementing a holistic approach to risk management for any company and a suitable guiding star for optimizing insurance costs for maximum efficiency.


This article is a part of our Foodprint publication focusing on issues and risks facing the Food & Agriculture industry. Read the publication and learn more about insurance solutions and the growing importance of risk management and alternative solutions like parametric insurance.

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Johannes Vogl

General Manager GrECo Risk Engineering

T +43 5 040411160

Health & Benefits Insurance: Matching Employer Brands & Employee Needs

Employees looking at Health and Benefits Insurance

Our Health & Benefits team analyses and determines actual client needs and develops individual or collective employee benefits plans based on corporate goals.

Protecting the health and safety of employees has never been more important for employers than right now. Employees are now looking for working environments that best meet their individual needs, provide well-being and health benefits as well as opportunities for career development. Employers are thus challenged to adopt new ways of cooperation and establish a collaboration culture with new values. Asserting one’s employer brand position and remaining attractive for both existing employees and new talents has never been more difficult.

Across the globe, HR managers are familiar with the “war for talents” – the battle for skilled workers. Hence, it is
not uncommon for highly qualified professionals to have the upper hand in negotiations. Committed employees
expect more than just an adequate remuneration for their work performance. Looking beyond tomorrow,
they expect additional packages, such as a contribution to their personal future provision or even a pension plan.

We like to act in the spirit of a large Opbacher family and offer our employees special solutions in the area of employee benefits. The GrECo team has the necessary expertise to coordinate the content of these solutions with our tax advisor and the perseverance for the right timing.

Mag. Viktoria Neuner-Opbacher
Managing Director at Opbacher Installationen

Providing tailored Health & Benefits insurance solutions

We put our effort into satisfying the individual needs of our clients by making sure they receive:

  • Tailored health and benefits concepts which we compare to relevant labour and tax law options.
  • Planning and support for in-house implementation and optimisation of existing systems.
  • Support in the selection of partners through tender negotiations and comparisons, evaluations, etc., as well as support for tenders under public procurement law.
  • Complete project management expertise to implement employee benefits schemes.

“The specialists from GrECo regularly benchmark our existing Health & Benefits programmes with others available in the market. We receive reliable market research, loss ratio reports
and information on brand new products e.g. Covid-19 or cancer insurance. Moreover, GrECo Poland also provides support for our employees –they are always available per e-mail and telephone for them!

Marta Pogorzelska
HR Manager at Boehringer Ingelheim Poland

Creating added value

We help clients tackle the challenges they face as employers:

  • Premium and cost containment: Our multilevel approach to obtain best pricing conditions as well as regular and transparent loss ratio control results boosts efficiency in risk placement conditions.
  • Individual approach and service quality: Ensuring the highest quality standard and an individual approach at all stages is our topmost priority.
  • GrECo competitive environment: We aim for an optimal cost benefit, coupled with the widest possible coverage.
  • Highly professional team: Every member of our Health & Benefits team is a highly qualified specialist who looks back on five and more years of experience in insurance and employee benefits.

We had an extensive decision-making process about the change of our severance payment fund together with our works council and the investment department. The specialists from GrECo accompanied this decision with their in-depth knowledge and experience based on their annual market study, which gives a long-term overview of the development of the severance payment funds.

Gerhard Humpeler
CFO at Julius Blum GmbH

This article is part of our new Annual report 2021. The annual report gives you a review on GrECo`s facts & figures of the last business year and our most important developments. In addition you can find testimonials on the services the GrECo Group provides to its clients. The case studies are from different industries and GrECo regions.

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State of The Polish Insurance Market

Polish Insurance Market Skyline

For many years, Poland has been a rather low-premium market due to high competition and rather good results in most lines of business. This has changed by now in industrial insurance, where international standards and practices are being increasingly adopted.

Polish insurance market: premium and insurers in 2021

The Polish insurance market achieved a premium volume of 22.1 bn. PLN (8 bn. EUR) in Life insurance and 47.1 bn. PLN (10.2 bn. EUR) in Non-Life in 2021. Claims and benefits paid by Polish insurers amounted to approximately PLN 41.3 bn. At the end of the year, the combined assets of Polish insurance companies amounted to PLN 201.6 bn. Insurance penetration stands at 3.7 %, thus reflecting the country’s overall picture as one of the well-advanced economies among the Eastern European countries.

There is a consolidation tendency in the insurance market, as shown by the recent takeovers between international groups: Nationale Nederlanden bought MetLife, Allianz took over Aviva and Uniqa purchased AXA. Uniqa´s takeover of AXA had an impact on the overall market in terms of Insurers´ more selective approach while mainly focusing on the loss ratio and financial situation (related to the surety bonds). Moreover, lack the of AXA on the market, also caused problems with a lower number of offers and a lack of alternatives, especially for bigger contracts in CAR insurance. Despite these changes, most European insurance groups are active in Poland, contributing largely to the capacity of the market along with major Polish insurers PZU.

For many years, Poland has been a rather low-premium market due to high competition and rather good results in most lines of business. This has changed by now in industrial insurance, where international standards and practices are being increasingly adopted. More underwriting information is required to support a policy of selective underwriting, but still, there is no withdrawal from certain branches or occupations. Increases in deductibles and prices indicate a more moderate development than in other countries. The capacity of insurers remains similar to the previous years, but the risk appetite is more selective.

The state of construction insurance

Looking at the construction market in Poland, hydro-technical and tunnelling contracts still seem to be estimated as the riskiest. So far, the market has been hardening quarterly and, as a result, substantial rate increases can be observed in the majority of the contracts. Other negative changes contain more limited cover, higher deductibles and additional sub-limits. The line projects (mainly road projects) are estimated as more difficult and the insurance is referred to as unprofitable due to the significant losses in CAR. The concentration is also raising as the local CAR market in respect of the construction insurance is dominated by WARTA, ERGO HESTIA and GENERALI with some minor share of other Insurers. This tendency could lead to the situation where the conditions for many types of contracts can be comparable to foreign markets which would, in turn, make them more attractive.

The problem that currently affects the Polish market, and also affects insurance, is the value of inflation, which in May was almost 14%. As a result of an increase in the price level of construction materials and higher labour costs, there is an unpredictable increase in the value of the insured property or construction work. Due to the unstable situation in this respect, difficulties arise in determining the appropriate sum insured to avoid underinsurance. The obtained compensation may not fully cover the costs of repairing the damage resulting from fire or flooding or other damage resulting from the insurance contract.

For liability risks, the situation is stable and without changes. On the property side generally, a trend of rising prices was observed mainly due to an increase in severe weather events in territories that were previously not considered exposed. However, the overall rates are still competitive compared to Western European markets.
The same trend of increased rates applies to Health & Benefits where the overall influence of Covid-19 connected death and excess mortality, hospitalization, and the increase of serious illness cases have impacted the Polish market. Prices of Medical Packages are increasing due to rising medical costs and overall inflation. At the same time, there have been new products and coverages in Health & Benefits packages: oncology, cardio, diabetes packages, etc.

The situation in energy insurance

With regards to the historically well-known high competitiveness in the Conventional Power & Renewable Energy insurance, it can be said that the unsustainable reduction of deductibles led to losses due to insufficient premium volumes to cover underwriting expenses. In 2020, a change in deductibles and rate increases were observed on the market after another negative underwriting year. Poland plans to increase its renewable power capacity by 65% between 2020 and 2024, with most advances gained through the development of offshore wind farms. The country is finalizing its 2040 energy policy and looks to partner with the world’s largest Renewable Energy companies to develop the market.

One of the great changes the Polish economy will have to face is the transformation from coal as the country’s most important energy source, to other, “green”, sources. Although this will take some time, opportunities for innovation of both the technical bases and insurance solutions will positively influence the insurance market. Still, one of the main concerns of the insurers is to obtain higher market shares, which leads on the one hand to product innovation and product enrichment in Life insurance and a wild price war on the other.

In financial lines, we are experiencing rate increases as well as lowering of capacities just as at the Western markets, however, the Polish market still seems to be amongst the softest. D&O is experiencing certain changes, but they are not as harsh as foreign markets would expect. Cyber is still a market with quite a low penetration, however as the clients’ interest is increasing, the insurer’s appetite is decreasing, especially due to the low level of IT security standards at some local companies.
In the mentioned market segments, the following price increases are observed:

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Pawel Paluszinsk

General Manager GrECo Poland

T +48 661 992 282

Michal Olszewski

Energy & Mining Specialty

T +48 723 979 990