Tailored-risk transfer solution is the first to consider country's microclimates
Spain is the world's leading exporter of fruit and vegetables, with a global market share of 10%, followed by the Netherlands with 7.4% and China with 7%.
The country is Europe's agricultural power-house, supplying Europeans with fresh produce and processed foods year-round, ranging from subtropical fruits, green vegetables and grapes, to olive oil and wine.
The diversity of crops grown in Spain can be explained by a unique mix of microclimatic systems, ranging from areas in the north with mild climates and abundant rainfall, to areas with drier and more continental climates.
Spanish insurance protection for agriculture reveals gaps
These climatic conditions offer many opportunities for agribusiness, but at the same time they pose unusual risks that local farmers have to manage. For example, this winter's extreme weather conditions, with unusually low temperatures, the greatest snowfall in decades, and heavy rainfalls, led to the significant loss of many crops across Spain.
Traditionally, in similar cases farmers in Spain can protect their profits with indemnity-based insurance products. They receive compensation based on the amount of fresh produce lost, e.g. grape harvest lost due to frosts. However, the actual damage to their business can be more dramatic, as they lose their revenue from not being able to sell the final product - wine in this example.
Another challenge lies in the use of official government statistics for parametric insurance, e.g. weather data for particular regions, in order to determine the payout. This approach works well for large regions with homogenous crops - the Corn Belt in the US for example. In Spain however, the diversity of microclimates often cannot be captured by official statistics with a sufficient level of granularity. For a long time, agricultural cooperatives have been looking for a more precise solution considering individual farm's climatic conditions.
Swiss Re Corporate Solutions entered the Spanish market this year with a new product tailored to the specific needs of Spanish cooperatives and able to cover gaps in farmers' protection.
Guaranteeing revenue by protecting economic results, not just assets
The innovative solution can cover losses based on the cost of the economic activity along the supply chain or on the cost of final products, explains Rolando Rivera, Senior Underwriter, Food and Agriculture team: "Our protection mechanism meets the insurance needs of many players along the agricultural value chain, not only farmers. It is an effective way to protect the company´s economic results – as opposed to assets – in case of a crop shortfall."
This insurance can cover risks associated with processing and marketing fruit, rather than producing it. For example, an agricultural cooperative has high fixed costs to maintain refrigerated storage facilities for preserving fruit. In case of a crop shortfall, the facility will not be used at its full capacity, and this can ruin an agribusiness. Swiss Re Corporate Solutions can help mitigate this economic risk of not operating the facility at its full capacity.
In order to calculate losses, Swiss Re Corporate Solutions will rely on the statistics of cooperatives or agribusinesses rather than official statistics on a province-level. This data gives a much more precise insight into the extent of damages suffered by farms belonging to a cooperative or agribusiness.
Catalonia will be the first to try new protection, event in Lleida explains benefits
Central D'Assegurances, a broker in Catalonia, will be the first one in Spain to offer protection with the new solution. Ivan Caelles, Manager from Central D'Assegurances, explained that the market has been waiting a long time for exactly this approach: "This kind of insurance protection has unfortunately not been available in Spain until now. We welcome this opportunity to protect agricultural business profits in case of large-scale damages."
Recently, Central D'Assegurances and Swiss Re Corporate Solutions organized an event for about 70 local agribusiness in Lleida, a town in north-eastern Catalonia, to discuss the new insurance product. "We are excited to share our knowledge in the agro-sector by offering this innovative product through Central D'Assegurances to the cooperatives in Catalonia." - said Loredana Mazzoleni Neglen, Head Sales EMEA, Swiss Re Corporate Solutions. "We hope to be able to replicate this initial success with other regional agro players in Spain."
Find out more about our insurance solutions for agriculture by clicking here.
Swiss Re Corporate Solutions’ Food and Agriculture team provides innovative crop shortfall yield-index based insurance, weather-based index covers and structured price hedges to mitigate the financial impact of lower-than-expected agricultural production. The offerings are tailored to the needs of the various participants across the entire agricultural supply chain including corporate farming operations, input suppliers, traders, logistics companies and banks.
Swiss Re Corporate Solutions specialises in the food and agriculture sector. We have experienced underwriting teams equipped to provide innovative, multi-line risk transfer solutions spanning the entire industry.Learn more
Parametric insurance helps make companies more financially resilient by minimising slumps in their profits resulting from unforeseen climate events.Learn more
Our growing global population needs access to power, food and water to survive and thrive. But changing weather patterns call for a new approach to resilient energy infrastructure.Learn more
Swiss Re Corporate Solutions hosts and sponsors quarterly drinks event in cooperation with A Word About Wind at our iconic London offices at 30 St Mary Axe. These exclusive networking opportunities enable senior wind energy industry professionals to network with their counterparts working in finance and investment in the London City.Learn more
08 May 2017