THE SPANISH AGRICULTURAL INSURANCE SYSTEM WORKSHOP ON RISK MANAGEMENT 18-19 MAY 2017
1. General features of the AIS. Agricultural Insurance System (AIS) is almost 40 years old. Risks covered are the damages caused by abnormal variations of meteorological agents (hail, fire, drought, frost, flood, hurricane or warm wind, snowfall, excess humidity, other climatic adversities), accidents, pests and diseases on the agricultural productions and optionally on the installations. These risks are covered in a combined way (multi-peril policies). Exceptionally isolated. Market risks are currently not covered (long-standing demand by farm sector) Participation is voluntary for farmers. What is insurable under the AIS cannot be compensated otherwise. Insurance policies are subsidised. Subsidies to the payment of insurance premiums are compatible with the internal market under the EU Guidelines for State Aid. Subsidies reduce the prices paid by the farmer and make it affordable.
2. Insurance products available. The AIS is a dynamic system, and it has greatly evolved since its creation. The Agricultural Insurance Plan (AIP), adopted annually by the government, is the main strategic document. It establishes the general aspects of the AIS: Insurance lines and products available. Risks covered. Contract periods. Subsidy levels. Initially, Agricultural Insurance was limited to certain crops (mainly cereal crops) and risks (hail, fire) Currently, Agricultural Insurance covers all sectors (plant crops, livestock, forest and aquaculture productions), and all the relevant climatic risks and some pests and animal diseases.
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Million THE SPANISH AGRICULTURAL INSURANCE SYSTEM 800 800 700 600 500 400 300 1 st period 2 nd period 3 rd period 491 200 100 0 Comercial premiums-direct insurance Indemnities-direct insurance
THE SPANISH AGRICULTURAL INSURANCE SYSTEM 2. Insurance products available. Insurance products for plant crops: o Increasing multi-peril insurance. Most insurance lines have an increasing modular structure, with several insurance modalities ( modules ) covering same risks but with a different degree of coverage. Module 1. only catastrophic losses (over 30% of insured production in the whole farm). (6% capital insured) Module 2. Main risks compensated for losses in each plot of land. The rest in the whole farm. Module 3 (Only in some insurance lines). Most risks compensated for losses in each plot. o Traditional multi-peril insurance ( Module P ). Nominal risks, per plot. Insurance products for livestock: Farm insurance (Basic + Additional guarantees). Removal & Destruction of fallen stock. Pasture loss. Insurance products for aquaculture : Farm insurance (Basic + Additional). Additional guarantees for diseases and Removal & Destruction of dead animals. Insurance products for forest productions: Multi-peril insurance (fire, wind, flood ).
3. Main actors. FARM & LIVESTOCK SECTOR : AGRICULTURAL AND COOPERATIVE ORGANISATIONS INSURANCE POLICY MINISTERIAL ORDERS AGRICULTURAL INSURANCE PLAN MINISTER CABINET OF MINISTERS D-G INSURANCE & PENSION FUNDS INSURANCE COMPANIES AGROSEGURO PRIVATE PUBLIC ENESA INSURANCE COMPENSATION CONSORTIUM AUTONOMOUS COMMUNITIES
THE SPANISH AGRICULTURAL INSURANCE SYSTEM 3. Main actors (public sector). 1. 2. 3. Ministry of Agriculture and Fisheries, Food and Environment. a) National Agency for Agricultural Insurance (ENESA). Coordination and liaison body for the Agricultural Insurance System. Executive body: General Commission. All parties in the AIS are represented. Drafts of he Agricultural Insurance Plans, submitted to the Cabinet of Ministers. Ministry of Economy, Industry and Competitiveness. a) Directorate-General for Insurance and Pension Funds. Supervises the premium rates proposed by the Association of Insurance Companies. b) Insurance Compensation Consortium. Compulsory re-insurer of the system. Direct insurer, in the share that is not covered by the private companies. Control of the loss adjustments. Autonomous governments. Participate in the AIP and the insurance lines. Grant complementary subsidies.
3. Main actors (private sector). 1. Insurance companies. Agricultural Insurance is characterised by great variability and high catastrophic potential. This leads to: High need for Stabilisation Reserves: allocation of funds in good years to compensate the losses of years with negative results. Need for a long-term stable Reinsurance. Companies participating in the AIS are subject to certain rules: Must participate in the coverage of all risks. Cannot compete in the products offered nor the premium rates, but they compete in the management costs charged and the quality of the service. Cannot apply customer selection : any producer who complies with the requirements has the right to be insured.
3. Main actors (private sector). 2. AGROSEGURO (association of insurance companies). In order to comply with the requirements, companies in the AIS are grouped into a coinsurance pool (AGROSEGURO). Currently, 22 insurance companies + Insurance Compensation Consortium. AGROSEGURO is a management entity (not an insurance company in itself). Acts on behalf of the companies for: Representation Calculation of the premium rates for each insurance product. Preparation of the insurance contract models. Management of the loss adjustments and the payment of the indemnities. Accountancy Companies carry out the underwriting of insurance policies through their commercial network, and assume the risk in the same proportion as their participation in the stock capital of AGROSEGURO.
3. Main actors (private sector). 3. Agriculture Professional Organisations and Agricultural Cooperatives Organisations. Contribute to the general orientation of the system, transmitting the needs and points of view of the agricultural producers. Participate in the decision bodies of the AIS (ENESA General Commission and subsidiary working groups) and contribute to the design of the AIP and the insurance lines. Play an important role in the advertising, dissemination and promotion of the Agricultural Insurance. Act as commercial agents in the marketing of the insurance products.
4. Subsidies for the payment of insurance premiums. Central Government subsidies are deducted from the premium paid by the farmer at the moment of underwriting the policy and subsequently paid by ENESA to AGROSEGURO. An agreement is signed each budget year between ENESA and AGROSEGURO, regulating the conditions for this payment. In order to be eligible for the subsidies, beneficiaries must comply with some minimum requirements: Administrative. Comply with tax and Social Security obligations. Economical. Only small or medium enterprises. Technical. Comply with minimum farming practices. Autonomous governments grant additional subsidies, within their territories. Combined amount is within the limits established in the EU Guidelines (average for 2016: 36% CG + 10% AAGG).
4. Subsidies for the payment of insurance premiums. General figures BUDGET YEAR No. Policies Insured animals (million) Insured crops (1000 tons) Insured Capital (M ) Net Cost (M ) ENESA subsidy (M ) Aut. Com. subsidy (M ) Compensations (M ) 2015 441.063 290 33.502 12.113 665 229 61 456 2016 423.772 248 34.164 12.722 703 255 72 468 36% 10%
5. Conclusions 1. Advantages of the AIS for for the government. Subsidies to the AI constitute an ex-ante risk management policy, which allows for a long-term planning and a budget stability. Its Public-Private structure reduces the economic and the political costs, since the criteria for indemnities are contractually assumed by all parties. It avoids duplicities by the public administrations in the handling of damages caused by climatic events. Direct aids are only granted exceptionally, for those risks or productions not covered by the AIS.
Millions THE SPANISH AGRICULTURAL INSURANCE SYSTEM Subsidies vs. Indemnities (historical series) 800 700 600 500 400 300 200 100 0 Budget year Indemnities ENESA's subsidies 1 SUBSIDY GRANTED THROUGH ENESA = 2,20 INDEMNITIES PERCEIVED BY FARMERS (AVERAGE 2011 2016)
Conclusions 2. Advantages of the AIS for for the insurer. Allows insurers the access to a new insurance market. Insurers can commercialise other types of insurances to agricultural producers. Coinsurance pool allows to share administration costs (efficiency) and assume the coverage of catastrophic risks characterised by a high level of losses when they occur and that would be impossible to cover individually.
Conclusions 3. Advantages of the AIS for for the farmer. The farmer receives an indemnity proportional to the damage suffered. Indemnity is paid to the policy holder within approximately 60 days after harvest (plant crops) or after the loss adjustment (livestock). The farmer is better protected against unpredictable weather conditions and this stimulates the investment (innovation, competitiveness). His solvency rating improves and this allows a better access to credit.
THANKS FOR YOUR ATTENTION.