Agricultural Re A Fast-Growing
AMIDST SHORTAGES on the sup- ply side and rising concerns over food security, demand is increas- ing for agricultural (re)insurance
products in fast-growing emerging markets.
Governments in these emerging markets—where demand for agricultural raw
materials is particularly high and agriculture is a key sector of the economy—have
come to realize that agricultural insurance
is an effective risk-management instrument to protect farm income and ultimately increase production.
In fact, the majority of these governments already offer agricultural insurance
programs to support the farmers.
GLOBAL PREMIUMS Agriculture Insurance Premium 2009 (in millions of U.S. dollars)
10 - 100
100 - 1,000
1,000 - 2,000
Source: AXCO and Swiss Re research
DECADES-LONG PRODUCTION SPIKE
Agricultural production in the emerging
markets has spiked over the past two
decades, contributing to a considerable
export turnover. Today, emerging markets
account for 60 percent of the global cereal
production (BRIC countries alone produce
While the agricultural-production systems of different emerging markets vary
greatly, a number of challenges for the
insurance industry are common, including
lack of adequate insurance-loss statistics,
high exposure to systemic perils, and underdeveloped insurance infrastructure with
little loss-adjustment resources.
Despite these obstacles, current agricultural-insurance programs in emerging markets show the largest annual growth rates.
For instance, China is now in second
position after the United States in terms
of premium income—only three years after agricultural insurance was introduced
in that market.
CONTINUED GROWTH AHEAD
And growth in today’s key emerging markets is bound to continue with increasing
insurance penetration and more areas and
crop types to be insured.
(Innovative approaches to distribute in-
surance products in a cost-efficient way—
such as via mobile devices—are key success
factors in all these countries.)
■ WEATHER WOES
Floods & Drought, Combined With
Rising Food Demand, Tighten Food Supply
EXCESSIVE DROUGHTS in West- ern Australia and Russia, unprec- edented floods in Pakistan, as
well as the current drought outlook for
parts of Argentina and Brazil, not only
captured media headlines in 2010 but
also tightened the supply of key agricultural commodities.
As a result, prices for food items in
many developing countries are increasing,
although not (yet) to the extent of the
2007-2008 food crisis.
And the increasing wealth of a growing
population in the Asian emerging markets
is leading to more demand for higher-
protein food items such as beef and dairy
products. Additionally, the biofuel industry
is competing with the food sector for the
same agricultural commodities.
On the supply side globally, yields
of most commodities are just keeping
pace with the annual increase in
population. Limited arable land and
degrading soil in extensive agricultural
systems—along with underinvestments
in infrastructure—make it a challenge to
increase production to satisfy demand. NU