With annual growth rates of 20%, China’s agriculture insurance sector is the third largest line of insurance as well as the world’s second largest agriculture insurance market after the US with a USD 5.2 billion premium base in 2014. China’s agriculture sector is largely exposed to a variety of perils including droughts, floods, typhoons, hailstorms, frosts, epidemic livestock diseases and forest fires.
Since agriculture insurance started in 2007 with government subsidies, several provinces have experienced significant losses. However, China has not yet seen a catastrophe event with severe impacts over several provinces at the same time.
The fact that forestry and livestock only consist of 29% of the premium volume but of 60% of the exposure worries many underwriters and risk managers.
We have developed a China Agriculture Model (CARP) to address these concerns in providing the best analytics in a holistic approach.
China has an indemnity-based agriculture insurance system where perils are selectively insured so a risk model needs to be peril specific with hazard output based on disaster proxies. In CARP we develop models at county level which are based on:
- Area affected data at province and city resolution
- Weather data simulation to capture areas with large drought and excessive rainfall
- Physical modelling to capture impact of weather on crops
- Crops: drought, flood, typhoon, hail/local wind and frost per crop type
- Livestock: diseases, epidemic diseases and natural hazards per livestock type
- Forestry: forest fire and comprehensive covers (all risks) for timber plantations and natural woodlands
Key Model Functionalities:
- Frequently updated database of insurance terms and conditions which can be modified by the user
- Historical scenario analyses for crop, livestock and forestry risks
- Correlation analysis per risk type, peril and over provinces
- Correlation analysis combining crop, livestock and forestry risks within a portfolio
- Portfolio Module to simulate losses to entire reinsurance portfolio covering all types of reinsurance structures for reinsurers to monitor accumulations and optimize reinsurance portfolios.
CARP is used by Chinese insurers, major reinsurance brokers and reinsurers.
India’s agriculture crop insurance is entirely based on complex weather and yield indices with a plan for the government to introduce income insurance covers where yield and commodity price risks are combined. This should lead to a fast growth from the current USD 800 million market premium making India soon be the third or fourth largest agriculture insurance market globally.
While recent cyclones brought large losses in some states in 2013 and 2014 through excessive rainfall, India’s crop insurance programs have not yet experienced large scale drought events similar to 2002. This lack of historical catastrophe event with the fast growth in the insurance portfolios is of concern for insurers and reinsurers alike.
Insurers will have to price the indexes more efficiently and consistently implement accumulation control with the growing aggregates.
We have developed Agro Risk Metrics (ARM) to assist insurers anywhere in the world to price consistently and manage index products in agriculture. The ARM model was co-developed with IFFCO Tokio, a leading Indian agriculture insurer.
- 25+ weather indices including deficit/excess rainfall, dry/wet days, HDD, LDD, wind and disease days and specific features such as rolling limit and floating covers
- Access to 40+ years of gridded daily weather data at the resolution of 25 x 25 km to complete missing data and support pricings
- Yield indices including access to synthetic yield data
Key Model Functionalities:
- Analyzing and de-trending of weather and yield data
- Pricing and structuring of covers
- Risk Mapping including disaster zones, irrigation maps and hazard proxies
- Claims calculations during and after the contract period
- Portfolio modelling for weather and yield indices
- Reports at various resolutions
- Data management system
Our clients are gradually integrating the ARM technology into their underwriting system.
ARM is used by insurers in India and China and has been used to price a new weather index program in Mozambique (Africa).