Drought-reducing crops, a lack of autumn rainfall, a lack of snow cover, and the delayed launch of the Hard-to-Insure Risk Fund – are facts that are sure to upset many farmers. What about drought insurance? Can they be arranged? Marek Bizoň, the director of Agra pojišťovna, answered these and other questions.
Why does drought pay for an uninsurable or difficult to insure risk?
Drought poses several challenges for insurers. First of all, the risk is widespread, it can affect really large areas. On the other hand, it is difficult to measure, other factors such as soil quality, different sensitivity of crops to lack of moisture during the growing season, prevailing temperatures, etc.
Can modern technology help?
In addition to traditional insurance, index insurance used in Europe and around the world. It works exclusively with meteorological data, especially data on precipitation and possibly also air temperature. In addition to Austria, our parent company provides this insurance, for example in Romania. At first glance, this seems like an elegant solution – insurance benefits are paid automatically, so-called from the table. However, in addition to clear advantages, it also has disadvantages – rain gauge stations do not stand on every plot, in every municipality and interpolation is not always completely accurate. It may happen that someone does not receive the payment, even though they have a real precipitation deficit.
So drought insurance is possible. Is it also available for Czech farmers?
Yes, as a purely agricultural insurance company, we have the necessary know-how and we have included drought insurance in our offer. When we were preparing a pilot project for the Czech market, we assumed that clients would want to take out cheap insurance in the event of catastrophic damage. However, experience has shown that the demands of clients are higher, so we will either modify and expand the existing product in the coming years, or we will switch to a completely different model.
Higher demands? What can we imagine under that?
Of course, the client always wants the lowest possible premiums and the best possible insurance, preferably without co-participation. But: the price of insurance depends on the risk borne by the insurer. Either I will pay high premiums and I will be able to have even minor damages repaired at the expense of the insurance company, or I will save on insurance, but I will have to pay for minor damages myself and I will contribute to large damages.
There were reports in the media about the planned launch of the Hard-to-Insure Risk Fund. How is its operation compatible with your offer?
The launch of this fund has been talked about for many years. The working group already existed at the time when we entered the Czech market under the Agra pojišťovna brand – and this year we are already celebrating our tenth anniversary. So far, we will certainly keep drought insurance on offer and we will further develop and adapt it to the Czech market. Clients can apply for a state contribution from the “Insurance Support” program for this insurance premium, which is a proven and functioning system.
If the fund is launched, we hope, in the interests of farmers, complete transparency and the freedom to choose whether to join the fund or take out insurance. Commercial insurance has clear rules, and insurance conditions, and is under the supervision of the CNB. It cannot happen that the client pays for the insurance and there is no money to pay the benefits.
The fund conceive as a mutual insurance association with state support. The state contribution to it will be as large as farmers’ deposits – so we can only hope that their interest will be enormous.
It is not without interest that the Österreichische Hagelversicherung, our parent company, has had the legal form of a mutual insurance association since its inception almost 70 years ago. Thus, like the funds, it does not aim to generate profit but acts as a service to contributing farmers. He takes care of competent and fair help to those who are in trouble. Even under the Agra pojišťovna brand in the Czech Republic.
How the damage caused through drought dealt with?
The biggest challenge with drought insurance is determining the right procedure for determining the amount of damage. Take the hail damage – the client reports it, we arrive, inspect the land, use a proven methodology to determine the percentage of loss on revenue, and pay the performance. And we are at the methodology – how do we get data on the usual and real return? Did the drought or any other factor cause the damage?
This requires long-term experience and competencies that our insurance company has gained thanks to its long-term operations, especially in Austria. Nevertheless, it is much more difficult to determine drought damage correctly than for damage caused by other, normally insured risks. In practice, liquidation takes place in several stages.
