2011 was a year that saw a lot of records broken in weather and natural disaster events, the results of which were insured losses for the year of between $105 billion to $110 billion across the globe. Now data has been published which shows that U.S. crop insurance claims payments have hit a record for 2011, thanks to severe weather events and natural catastrophes. For the year of 2011 crop insurance payments have broken the $9 billion mark for the first time ever.
The figure of $9 billion is set to rise further as there are claims from the later half of 2011 still to be paid, it’s believed it could reach $10 billion once all claims are paid. The previous record of $8.67 billion was set in 2008.
Events which hit farmers across the U.S. included freezing weather across the South, droughts in the Plains, flooding along the Mississippi, rainstorms and hail from severe thunderstorms.
These numbers show the huge opportunity for crop weather insurance, as the majority of crop losses are related to various weather events. Much of the crop insurance coverage in the U.S. pays out based on assessed damage to crops, meaning payout can be slow and involves physical assessments of farmers land to calculate the damages. By linking crop insurance payments to weather conditions, as some products so, it means farmers can receive much quicker payouts and the claims process is much more efficient.
The role of the claims assessor won’t go away, there are certain events which will always need an assessment, but by linking crop insurance to actual climatic conditions and using weather risk management techniques to provide new crop coverage products, it is likely that more, and more of the crop insurance payments will be weather linked in future.
There is also a role to play for reinsurers in the crop weather market and depending on U.S. federal support for crop insurance on future this role could increase in importance. Reinsurers are well positioned to hedge crop weather losses using a range of alternative risk transfer tools. One day we could even see a crop weather catastrophe bond.