Indemnity-based Agricultural Insurance
(Insurance pay-outs are based on the actual loss at the insured unit level.)
1. Named Peril-Percentage of Damage-Widespread
2. Multiple Peril-Yield Loss-Widespread
b) Weather index insurance products
The product is designed around the construction of an index that is highly correlated with loss experiences. The most common index in agriculture is rainfall. Typically, an insurer will offer a contract that will specify the index (for example, rainfall), over what period and where it will be measured, the threshold, the sum insured and indemnity limits.
If the rainfall is less than the index at the specified measurement point and over the period specified in the contract, the insurer will pay-out under the contract irrespective of the actual losses of the policyholder. The quantity of the pay-outis determined according to the provisions of the contract. A simple pay-out may be the total sum insured under the contract. More commonly, contracts are written so that the proportion of the sum insured that is paid out is determined by how far the actual production observed in the insured unit deviates from the index.
This product can be used at the micro, meso or macro levels. At the micro level, a producer will insure their production based on the measurement of rainfall at a weather station close to their farm. The meso-level insurance may attract a financier who has provided crop finance to producers in a certain geographic area and wishes to mitigate their credit risk against the possibility of drought in the area. At the macro level, a country wishing to lessen the possibility of famine through the failure of a staple crop as a consequence of drought may be attracted to this insurance, where the index is country-based, and the weather observations are made at stations throughout the country.
Internationally rated reinsurers can arrange agriculture insurance on a Quota Share Treaty and a Stop Loss Treaty. Reinsurance Type: Pro rata (quota share), stop loss, excess of loss, facultative, structured risks. Typical Ceding Company: Regional, national, MGAs, mutual companies, individual producers, corporate entities.
Our underwriters will consider diverse areas of exposure, including: