Lack of data a challenge for crop insurance in emerging markets

A lack of necessary data is one of the major impediments to agricultural insurers looking to grow in markets such as China, India and Brazil, notes a new article from Lloyd’s of London.

Crop insurance is forecasted to be a significant need in those growing countries, Lloyd’s says. North America is the largest buyer of the coverage, but China isn’t far behind, it says.

However, a lack of data presents a challenge for insurance companies.

“The challenge is always data… simply, do you know enough about the risk?” Julian Roberts, executive director of agribusiness and weather risks at Willis says in the article.

“If you’re used to underwriting in North America then you will be accustomed to a fabulous wealth and depth of data on which you can crunch numbers; equally there are some mature models upon which you can rely.”

“It’s been a real challenge for underwriters to extend their reach into some of these emerging agricultural insurance markets and really understand what they’re seeing,” he adds.

“However, risk modelling packages are now emerging for the Chinese market. We are currently evaluating these as they are released and are impressed with what we have seen so far, so the tools of the trade are now slipping into place.”

The Chinese government  “heavily subsidizes agricultural insurance premiums in an effort to encourage take-up,” according to Lloyd’s, adding that insurance premiums jumped to $3.9bn in 2012, up by 28.2% year-on-year.

Catastrophe modeller AIR Worldwide also recently developed a loss model for major crops such as corn, cotton and rice, in China, Lloyd’s points out.