With global population expected to top 9 billion by 2050, ensuring food security for the world poses a major challenge. It requires not only balancing food demand and supply, but also a multi-stakeholder response involving support from stakeholders including the insurance industry. Keeping agricultural production adequate requires a solid understanding of the agricultural risk landscape and how insurance can help manage risks across the entire agricultural food value chain. Insurance can help fuel investment in the agriculture sector and provide incentives for farmers and corporations to increase food production. Insurance however is not the only driving force in solving the global food insecurity issue, but insurance protection is an important measure for meeting food security objectives. The global insurance industry can be an enabling partner in providing risk protection and improving the agricultural sector's output and productivity, thereby helping to reduce global food insecurity.
As illustrated in the figure attached, apart from insuring against weather-related losses, agriculture insurance can encourage investment in equipment and better technology for the agriculture sector, thus contributing to higher production and supporting the leap from subsistence farming to sustainable farming. Without credit, growth in the agriculture sector would be marginal at its best, and agricultural insurance is sometimes required as collateral for extending farm credit to small-scale farmers. In some emerging markets like India, agricultural crop insurance is compulsory for farmers requesting financing/credit from financial institutions. For a number of emerging markets, where the agricultural sector constitutes a significant part of national income, agricultural insurance helps support the economic sector and also promotes economic growth.
Insurance also provides risk management solutions across the agricultural food value chain. It provides protection against various non-weather-related risks including business risks specific to food processing (such as input shortfall), providing infrastructure, transportation etc. This risk management and protection all along the food chain helps support food security at the local, national and global levels.
Furthermore, agriculture insurance helps ensure that farmers' earnings are protected and stabilised. This income stability allows low-income farmers to increase their children's education, improve their diet, and further their skills. Microinsurance, in particular, offers low-income farmers/households a viable way to manage their life and health risks and reduce their vulnerability to extreme events. As risk awareness increases and low-income farmers better understand the benefits of agricultural insurance, there is a strong possibility that demand for conventional insurance products will rise. This could include, for example, term life covers, savings insurance products, family health protection, or hospitalisation products.
For more details, refer sigma publication: http://media.swissre.com/documents/sigma1_2013_en.pdf
Category: Food security: Farming