Agroinsurance allows to mitigate the risks in case if bad circumstances endanger the crop output. Regretfully, mostly large and medium-size agricultural companies are involved in the agroinsurance programs, while the small ones tend to get off. Why? The insuring company’s opinion is that the small farm producers are confident that no bad things will happen to them, so there is no need to throw money away. Again, it is thought that insuring companies are not worth of trust – that is, one who gives them money will never get redemption in case of the insured event occurrence.
There are other reasons as well. “Spare money (a margin) a farmer has is sufficient to cover harvest losses on his own. And this is the case with small and medium size farm operations. What is more, very few insurers are really well-versed in farming specifics and can succeed in working with this business. The long-standing distrust still dominates the insurance market though it seems to have got rid of those tricky companies, which did not pay out to their customers and attempted to cheating. At least, Top-5 insurers dealing with agroinsurance products are worth of full trust”, – considers Olexander Mukha, Product manager for Agricultural risks insurance, PZU Ukraine. Nonetheless, over the last years Agroinsurance have grown more popular.
“In the last three years the activity on the market of insurance has gradually recovered. Primarily it is a result of local natural calamities which has become more frequent; another reason is in the economic growth and the third one relates to the maturity of farm producers and their growing confidence in insuring companies,” – argues Ruslan Zymovets, Head of Agricultural Insurance in the insurance company (IC) “INGO Ukraine”.
As reported by the magazine “Insurance Top”, only 15 companies gather tangible premiums on the market of agroinsurance. TOP-10 insurance companies which are extensively involved with agribusinesses as of month-end September 2018, are the following: PZU Ukraine, IC “Universalna”, IC “АSКА”, “АХА Insurance”, JSIC “INGO Ukraine”, IC “Credo”, IC “Brokbusiness”, IC “Guardian”, IC “Krayina” and IC “Etalon”.
The amount of insurance premiums these companies gathered under the agroinsurance contracts, amounts to UAH 202.9 mln. The rest of 5 companies account for UAH 3.78 mln. The maximum amount paid out to customers under the agroinsurance contracts as of 9 months 2018 totals UAH 31.89 mln by PZU Ukraine, UAH 718 thou. by IC “Krayina”, UAH 708 thou. by “АХА Insurance”.
Fair amount of programs
Subject to insurance may be both a single risk (loss through a fire or loss through a hail), as well as several risks altogether (rainfall, snow, hurricane, frost). Normally, insuring companies have special programs for insurance of future harvest. Another program provides for winter crops insurance in the wintering period. Most commonly used is a comprehensive program of insurance for the whole period of crop growing – from seeding to harvesting. “Insurance programs for farm producers are tailored to every task as much as possible, and may vary depending on the farm operation segment and the crop which has to be protected. It can be insurance of crop production costs, insurance of the future harvest, insurance of perennial plantations, gardens, grapes and other. Programs are flexible and adaptable. They all can be combined or contrarily, broken down in line with customer’s needs. The programs imply the standard damage settlement, with due regard to all risks (“multi-insurance”), – explains Ruslan Zymovets from JSIC “INGO Ukraine”.
Basic package of risks comprises all what may affect the yield, crops condition or even cause their loss. Essential risks cover hails, fire, frost, ice covering, frost-killing, sill stocks, storm, hurricane, rainfall, high water, excessive precipitations, drought, plant diseases, earthquake, landslide. Farmers can also insure their cropland against abusive actions of competitors or hooligans: in such cases “third party abusive practices” should be considered as a risk insured.
In general, classical programs of agroinsurance are divided in winter programs and spring-and-summer programs. As far as the winter crops are concerned insured for a period of wintering, the insured value is calculated as an area under crops multiplied by planned expenditures for 1 hectare of the farmland. Such programs are mostly offered for insurance of winter rape and winter wheat.
A different story is with spring-and-summer (partly, autumn) insurance programs. Here, the insured value is calculated proceeding from the value of the future harvest. Corn, soybean, sunflower, wheat (except for winter wheat) – all those crops are eligible for these insurance programs. The insured value is defined by using three indicators, i.e. area (in hectares), yield capacity (in centners/hectare), price on the harvested crop (in hr/centner). “For example, 100 hectares of wheat, insured yield capacity – 50 centner/hectare and price – 500 hr/centner. If we multiply the area figure by yield capacity and by price, we’ll get the insured value and the future harvest value – UAH 2.5 mln», – explains Olexander Mukha from PZU Ukraine
The insured value is of highly importance in the agroinsurance contract, since first, it’s directly associated with the rate calculation (i.e. insurance claim payment, actually, insurance value), and secondly, it matters in case of insured event occurrence. Then, the insured value should better be sufficient to cover losses caused by insured event.
Index insurance has been developing in Ukraine since 2016 in addition to classic agroinsurance programs. The main feature is in a basis – statistically averaged index of yield capacity, rainfall, temperature etc., bound to a specific region (land area). The insured event occurs when the fact of variance between the current and target values is revealed.
According to Olexander Mukha from PZU Ukraine, actual figures of the yield capacity in the insured entity are disregarded in computing the insurance claim payment: “For instance, if we insure a farm by yield capacity index, and the overall yield in the given region (administrative) drops in result of bad weather, the insured farmer gets indemnification even if crops yield at his own farm was high”.
But not everything in the garden is rosy. Under the index insurance the farmer won’t be indemnified in the event of his crops being damaged by a rainfall or hail, if the average crops yield figure in a region has stayed the same, and the temperature has not been critical.
How much does the police cost?
Almost all of agroinsurance offers imply the deductible amount called franchise running to 10-70%. It is the amount, which is retained by the insurance company once the insurance event has occurred. By way of example if the grower has lost his crop harvest for a heat, and the insurance claim payment works out UAH 3 mln, the final sum due to payment under conditions of 40% franchise, will be 1.8 UAH mln. With the franchise of 10%, the sum due will be UAH 2.7 mln. The higher is franchise amount, the lowest will be the insurance rate, and accordingly, the cost for the grower. But it’s not all that simple. In fact, the insurance rate is calculated by elaborate formulas with many indices. Like, losses in past insurance period, grower’s expertise and crop-growing technique, list of insurance risks (the more they are, the higher is the rate), crop cultivation region, a kind and yield capacity of the crop in the past years – all of them matter.
“In calculating the cost of insurance for customers the company takes account of all figures, which help to assess the grower and his farm in their entirety. The average insurance cost of the future harvest may be 650-950 hr/hectare under condition of multi-risk police (to cover various risks all at once)”, – says Ruslan Zymovets from JSIC “INGO Ukraine”. According to him, in autumn the grower fills in the application form to have his winter crops insured by specifying all items of cost to cropping. He points out the class of seeds, brands of chemicals and fertilizers. This is the way to calculate the tentative amount of expenditures per hectare and for the total area under crop. And that will be the cost of insurance.
“The insured value is calculated in multiplying the area by the yield capacity (average for 3-5 years), and the price of a crop unit (current market price or the last year sales price). To count the cost, the insured value is multiplied by the rate. In Ukraine the average market rates for corn, sunflower, wheat vary from 3.7% до 4.5%”, – states Olexander Mukha from PZU Ukraine.
Insurance companies do not offer so-called baseline rates, and always count the rate individually. So, finally, the grower can abate the price if he “bargains”.
And what about indemnity?
The question of high importance which comes up – how to get the insurance pay-out, since the company won’t cover a loss instantly after the grower calls to say that crops are destroyed by natural disaster. First, he will need to gather evidences of what has happened – to get the update from Hydrometeorological Center which confirms specific weather conditions.
After the claim of the occurred insurance event gets the insurance company, the designated officer goes to the farm for crops inspection. Over there, he counts the number of damaged plants per area unit. Then he draws up the inspection report where the crops condition is stated. Afterwards, the insurance company issues a claim report with a specific amount of indemnity compensation, the company is committed to pay out. In case if the third party abusive actions caused the insurance event occurrence (fire-setting), the police officer complete an appropriate report on facts, causes and kind of damage, other details of the insurance event.
There are provisions in the insurance contract, specifying events, which won’t be covered by the insurance police. The fact that the customer did not inform the company about the occurrence of the insured event may be just the case. By another provision the loss indemnity is not paid to farmers who flagrantly violated the prescribed method of cultivation
Not only fields
Beside the crop yields some insurance companies offer insurance for the farm stock – cattle, sheep. Though hogs are not usually subject to insurance due to high risks (outbreaks of ASF (African swine fever) occur in Ukraine each year.
Insurance packages for the farm stock cover all risks, including infectious diseases, natural disasters, accidents, poisoning at pasture, knockdown by a car an others.
“The legal entity has to fill up the insurance application form followed with information on the livestock in breeding. The farm inspection by the insurer is a mandatory requirement”, – explains Ruslan Zymovets from JSIC “INGO Ukraine”.
Author: Nataliya Boguta