National Association of Agriculture Insurers

Korney Bizhdov: global trends in agricultural insurance development were discussed at the International NAAI round-table

“The discussion of current trends in agricultural risk insurance at the International round-table of the National Association of Agriculture Insurers in St. Petersburg showed that agricultural insurance on our continent faces several serious challenges. These challengers should be taken into consideration when further developing insurance protection mechanisms for agrarians in our country,” said Korney Bizhdov, President of NAAI, commenting on the results of the international event.

The round-table event “Agricultural Insurance as a Risk Management Tool for the Farming Industry. Prospects for Development” was organized by NAAI in the framework of the XVII International Insurance Summit of the All-Russian Association of Insurers in St. Petersburg. The event was held on 03 July, 2019 in the State Hermitage Museum. It was attended by heads of state-supported structures organizing agricultural insurance from Russia, France, Spain, Italy, Poland, Belarus and Kazakhstan, representatives from insurance and reinsurance companies, agribusiness organizations and agricultural science organizations.

“The reports presented at the event identified several trends under the influence of which modern agricultural insurance is developing in Europe and the countries of the former USSR,” said Korney Bizhdov, President of NAAI. Firstly, the negative impact of climate change and the spread of dangerous livestock diseases is increasingly causing concerns to agrarians and their insurers, raising the question of the need to strengthen the agricultural insurance system. Secondly, in the formulation of agrarian policy, government institutions are increasingly moving from providing simple insurance support to developing a unified set of risk management measures, including various insurance mechanisms and other instruments. In particular, the European Union is moving in this direction. At the same time, there is a focus on further individualization of programs and conditions of agricultural insurance with state support, such as the accounting of applied technologies for organic farming. Thirdly, the introduction of digital technologies in the management of the agrarian sector opens up fundamentally new opportunities in terms of the organization of agricultural insurance and its state support. In some countries, practical development of such mechanisms has already begun; for example, Kazakhstan’s practical experience in introducing index insurance using a digital platform was presented at the round-table. ”

At the NAAI round-table in St. Petersburg, the experiences of various European agricultural insurance models were presented: from the cooperative agrarian societies (models of France and Italy), to the more rigid structures of public-private partnership (Spain).

French agricultural insurance experience was introduced by the President of the International Association of Agricultural Production Insurers AIAG, the member of the French OBC L’Étoile Board of Directors, Arnaud de Beaucaron. Crop insurance in France dates back to 1822. Cropland in France covers 28.8 million hectares, with 63% of the area being insured. About 30% of the total planting area is protected by multiple-peril insurance policies covering main sets of natural risks.

Albano Agabiti, President of the National Association of Mutual Agricultural Producers’ Funds АSNACODI, outlined main trends in the EU agricultural policy: initially, the main vector was aimed at supporting and developing multi-risk insurance, replacing “crop insurance against hail”. Starting in 2015, a whole series of new directions began to be discussed at once. The list includes insurance of both the income and the epizootic risk, index insurance and the participation of mutual funds in forming instruments for the stabilization of farmers' incomes.

Spain has been developing its insurance protection model for almost 40 years – since 1980. Over the past 4 years, from 2015 to 2018, Spanish farmers annually receive from 450 to over 700 million euros of insurance payments. “The peculiarity of the Spanish model is the diversity of risk insurance programs offered to farmers,” said Miguel Pérez Simas, Deputy Director of the State Agricultural insurance Corporation (ENESA) of the Ministry of Agriculture, Fisheries and Food (MAPA). “At the present time, 44 insurance programs are being subsidized in Spain: 28 programs to protect against risks associated with the cultivation of crops, 12 livestock insurance programs, 3 aquaculture insurance programs and 1 forest fund protection program. The main challenge for the agricultural insurance system, like its European counterparts, is the negative impact of climate change which may lead to an increase in losses.”

“Hail insurance is gradually being supplanted by multi-risk insurance of crops, with the inclusion of the drought risk,” says Konrad Roevsky, Product Manager of Agroinsurance of the Polish Reinsurance Company Polish Re, “expanding the use of satellite data.” Another trend, according to the reinsurer, is the growing interest of farmers in income insurance, leading to insurers' market experiments with such products, including in Russia. “In neighboring Belarus, agricultural risks insurance has been obligatory since 2008 and agrarians are obliged to pay only 5% of the insurance premium,” said Yulia Oreschenko, Deputy General Director of the Belarusian Republican Unitary Insurance Company “Belgosstrakh”. However, such insurance covers a limited list of crops: for example, in the last season, only crops of winter rapeseed and fibre flax were insured. “We should expect a gradual transfer of this type of insurance to a market footing,” believes Oreschenko.

A fundamentally new experience of crop insurance based on digital technologies was presented by Eldos Auezbekov, Chairman of the Association of Agricultural Insurance from the Republic of Kazakhstan. As part of a comprehensive project in Kazakhstan, a massive transfer of farms to an online mode has been carried out. About 70% of arable land was digitalized and the acquired information was entered into farmers’ individual online accounts. A pilot mode for crop insurance based on the soil moisture index was made possible with the use of satellite data. In 2020, it is planned to introduce insurance based on the yield index and on the biomass index of pastures. The project is carried out in partnership with the reinsurance company Swiss Re.

In addition to foreign experiences, Russia’s experience was discussed at the round-table. First, the floor was given to the representative from the agricultural sector, Alexander  Bykov, President of the Union of Farmers of the Leningrad Region and St. Petersburg. He spoke in favor of improving the procedures for claims settlement and expressed concern that the ability of farmers to purchase insurance protection is adversely affected by the high level of their debt load.

Sergey Prostatin, General Director of JSC IC (RSHB Insurance), noted a significant revival of the agricultural insurance market after measures to change legislation and encourage state support of agricultural insurance were taken at the end of 2018. At the current time, RSHB Insurance has increased their number of concluded crop insurance contracts by fourfold, and livestock insurance contracts by twofold, compared to the same period last year.

Nikolai Galaguza, liaison with government authorities advisor PJSC IC (Rosgosstrakh), urged the audience to recall that Russia already had experience with 100% insurance coverage of agricultural crops (such experience being obtained in Soviet times). He also noted that the issue of returning trust to the insurance system depends on the quality and speed of payments, stressing that for agricultural insurance with state support, this issue, among other things, depends on how quickly the government transfers their part of the policy cost; therefore, the restoration of trust in insurance depends to some degree on the state.

“In practice, trust depends on how the contract was concluded,” said Kira Svintsova, lawyer and CEO of AKS Legal. Her presentation on the topic “Practical legal aspects of concluding agricultural insurance contracts and claims settlement” concluded the discussion.

“Further development of agricultural insurance in Russia should consider modern trends, but rely primarily on the opinions of agrarians and the specific needs of the regions in protecting agricultural risks,” said Korney Bizhdov, President of NAAI, in summing up the round-table. He noted that in 2019-2020, NAAI intends to pay special attention to the development of individualized insurance programs, including the specifics of particular areas of agricultural production, as well as to improve the convenience of insurance and claims settlement procedures for farmers. One of the first programs to be adopted is the insurance program for vineyards and perennial plantations. In addition, NAAI intends to address a proposal to increase the amount of agricultural insurance subsidies in 2020 to 3.5 billion roubles, in accordance with the demand that has appeared this year to the Ministry of Agriculture of Russia.

Since 01 January, 2016, the National Association of Agriculture Insurers is the single all-Russian association in the agricultural insurance market with state support. Insurance companies that are not members of NAAI do not have the right to conclude agricultural insurance contracts with state support. The creation of a centralized agricultural insurance system in the Russian Federation is provided for by the Federal Law No. 424-FZ of 22 December, 2014, on amending the Law “On State Support in the Field of Agricultural Insurance ...” No. 260-FZ.

On 01 March, 2019, the Law “On State Support in the Field of Agricultural Insurance ...” No. 260-FZ was amended to increase the flexibility of agricultural insurance conditions for agrarians.