Irish farmers can now dip toes into global crop insurance platform
Farmers can now for the first time insure their produce against price volatility as easily as insuring their homes, with a global platform based on hundreds of niche commodity indexes, underwritten by Lloyd’s of London syndicate Ascot.
Crop insurance has existed since the 1930s in the United States but is heavily subsidized by the government to provide protection against damage to produce and price risks. There have also been government-backed schemes in Canada and India.
Supplying insurance without such state-backing has proved challenging, however, even as price risk continues to rise due to a variety of factors including commodity market liberalization and climate change.
“We talk about insurance as the oil of the wheels of the economy but there are lots of under-served areas and one of them is farming,” said Parth Patel, Chief Risk Officer for Ascot Insurance Group’s Syndicate Lloyd’s of London.
The new products have been made possible by recent advances in data science and the reduced cost of running the trillions of computer simulations needed to calculate risks across the portfolio of commodity indexes used by the platform’s developer Stable.
Stable is a British-based start-up whose investors include agrochemical company Syngenta, seed stage investor Anthemis Group and Swiss insurer Baloise Group, as well as Ascot.
So far about 450 farmers have used the platform, which has been running for eight weeks, but it may take time to earn the trust of many in a sector known for its conservatism.
In Russia, the platform uses price indexes issued by SovEcon agriculture consultancy.
“They (Stable) will have to prove and show the benefit from their instrument and gain the trust of farmers and processors who are used to common practice – being left unpaid or with undelivered crops in case of sharp price changes,” SovEcon head Andrey Sizov said.
English farmer Jeremy Mason was among the first to use the platform, insuring his feed wheat and feed barley.
“Farmers are facing enormous risks now, much more so than in years gone by,” he said, noting price volatility had increased significantly partly due to global climate change.
Mason, who farms in Norfolk in eastern England, paid about 4,000 pounds to insure 500 tonnes of feed grain which equates to 8 pounds a ton for seven months of cover. Payments are made in a similar way to other forms of insurance.
“It seems like a straightforward insurance policy. I’ve done mine on monthly direct debit,” he said.
He warned, however, that other farmers may be slower to embrace the new products.
“Farmers are extremely cautious and a lot of them are not going to understand this. It is going to take a long while for this to properly take off,” he said.
The wide range of commodities which can be insured on the platform helps the manage risks from the insurer’s point of view along with geographical diversity.
The platform is currently available for farmers in Britain, France, Russia, South Africa, Poland, the Netherlands, Chile, Australia, New Zealand, Ireland, Brazil, Uruguay, Sweden, Croatia, Portugal and Spain.