Crop Insurance Today Second Quarter 2019 - 39

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Agricultural Reinsurance
Focus of New Book
Editor's Note: Laurie Langstraat interviewed
Roman Hohl, the author of Agricultural Risk
Transfer, about his new book and the achievements
and challenges of the agricultural insurance industry. Tom Zacharias, President of NCIS, wrote the
forward for the publication.
What motivated you to write this comprehensive 440-page book?
"Working in different markets as an agricultural underwriter and having been at the forefront of the fast growth in agricultural insurance in Asia, showed me that underwriting and
pricing skills for agriculture are largely gained
through learning-by-doing. Having led the development of probabilistic agricultural risk models and explaining the concepts to the industry,
has often revealed that pricing is based on past
losses and loss potentials from systemic perils
such as droughts, hurricanes, and epidemic livestock diseases are often underestimated.
Collaborating now with the World Bank
Group as an independent expert in structuring
new solutions and training resources made me
realize that highly academic publications and
generalized guidelines are not an ideal basis to
learn about agricultural insurance. I therefore
wrote Agricultural Risk Transfer to close the
knowledge gap between insurers and reinsurers, developed and developing markets, as well
as academia and the industry. The book is well
justified given that the industry has grown to $33
billion (USD) (2018) and agricultural insurance
is among the three largest insurance lines in China and India and has advanced to be one of the
main specialty lines of (re)insurance."
What are the main topics in your book?
"Agricultural Risk Transfer provides an overview of the main risk transfer methodologies,

introduces the concepts of agricultural insurance
and discusses the main perils, data sources, and
key statistical and modeling techniques. Crop,
livestock, aquaculture, and forest insurance are
presented in detail, including comprehensive
case studies and best practices. Risk transfer to
reinsurance and capital markets are described in
theory and through practical examples, including an agriculture catastrophe bond. Through
the book, underwriters, actuaries, modelers, risk
managers, and assessors, government officials,
bank and fund managers, agribusiness executives, and students in agricultural economics will
gain a deep understanding of methodologies to
structure and transfer agricultural risks."
How do you see the industry trends?
"With the need increase the output to feed a
growing human population, the agricultural sector is bound to further specialize, which in turn
increases the vulnerability of the global food system to production shocks from adverse weather
conditions and diseases. Already today, key crops
such as corn, soybeans, and rice are concentrated
in just a few large exporting markets. This, together with governments continuing to integrate
agricultural insurance into risk financing strategies, will increase the demand for (re)insurance.
In developed markets, insurance covers are
likely to be further optimized and additional
risks such as business interruption and pollution will be insured. In developing markets,
index insurance will further develop to provide
safety nets for a large number of smallholders.
Generally, the transformation of public insurance schemes into private-public partnerships
is likely to continue, given increasing production volatility and government budget deficits.
Macro-level risk transfer from governments to
capital markets is one segment that might see

significant growth. The agribusiness industry is
increasingly inquiring about insuring production and market risks to manage the high fix
costs and avoid excessive earning volatility. Future growth largely depends on the availability
of government support through premium subsidies and reinsurance, which are essential for
well-functioning markets."
How do insurance products in the United
States compare to other countries?
"The United States is not only the largest
market for agricultural insurance but uses also
the most advanced products including revenue
and gross margin insurance and is often seen as
a role model. The U.S. market largely benefits
from the Risk Management Agency as a dedicated risk management entity while the easy
access to long data series of crop yields, weather records, and wildfire patterns allows transparent pricing and structuring a wide range of
products. In most other markets, access to such
data is difficult or expensive.
The U.S. products are structured to the needs
of large-scale farmers and cover multiple perils,
while in countries with smallholders, as in large
parts of Asia and Africa, index-insurance (area-yield and weather indices), calamity-based
insurance (where disaster declarations serve as
a first trigger) or macro-level risk transfer are
used. China is moving to the next level of products in piloting gross margin insurance for pork
operators and investigating revenue insurance.
Through conferences and on site visits, most
markets could learn more about the U.S. products and benefit from the experiences gained.

CROPINSURANCE TODAY®

39


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Crop Insurance Today Second Quarter 2019

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