Taiwan’s Council of Agriculture (COA) has announced plans to expand its disaster insurance programme for the agricultural sector to include rice and bananas, suggesting a need for greater reinsurance capacity and the potential for the capital markets to play a role in the future.
The COA introduced a disaster insurance scheme for farmers that grow pears, mangos, and sugar-apples in 2016. So far, the programme has rolled out 164 insurance policies to pear farmers, 92 insurance policies to sugar-apple farmers, and six insurance policies to mango farmers, according to Hsu Wei-wen, Bureau of Agriculture Finance Director.
Now, the COA has announced plans to expand the scheme to include rice by September 2017, and bananas at some point in 2018. Alongside the inclusion of rice, reports cite the scheme will also include certain aquaculture solutions as a grouper, and six types of greenhouse facilities will be included by the end of 2017.
As the scheme expands to include more crops and reaches a greater volume of farmers it will require greater reinsurance capacity to support its members and to ensure efficient and affordable risk transfer.
There’s also potential for capital markets capacity and features and to play a role in schemes such as this, with parametric of weather-index triggers being highly suitable to such schemes as they expand, ultimately requiring deeper pools of capital supported by innovative and effective risk transfer mechanisms.
In vulnerable, typically poorer parts of the world the impact of adverse weather on crop production can be extremely detrimental to social and economic growth and stability, and insurance provides farmers with a means to carry on in the event of a disaster.
If a disaster does impact crop yields and triggers an insurance policy, parametric structured solutions offer rapid-payout post-event when compared with more traditional type solutions that require comprehensive loss assessment, that can take months to assess.
Catastrophe bonds and other forms of insurance-linked securities (ILS) are a good fit for disaster insurance schemes and can provide a diversified and efficient source of reinsurance capacity. And as schemes like this expand the ability for the capital markets to play a role becomes ever more apparent.
According to Hsu Wei-wen, the output of Taiwan’s agricultural sector is roughly US$16.61 billion (NT$500 billion) a year, while natural disaster losses amount to roughly US$360 million (NT$10.7 billion).
Reports from the region explain that the Kaohsiung and Pingtung governments have called on the COA to provide insurance solutions for all categories of aquaculture for damage caused by intense rainfall and typhoons. Although the COA reportedly responding that it would be unable to do this for such farmers until sometime in 2018.
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