31 October 2019Insurance

China agricultural insurance premiums surge on government subsidies

China has increased its insurance premium volume more than tenfold in just a few years, according to analysis by reinsurer SCOR.

SCOR has set out some of the risks in the Chinese agricultural market, as well as the opportunities, and has devised a drought index, addressing a major issue for the country.

Almost one fifth of the world’s population currently lives in China. Although it has the same surface area as the USA, China has four times as many people to feed. In addition, weather extremes and natural disasters pose major challenges to agriculture.

One of China’s political priorities is therefore to establish and maintain sustainable agricultural production. Supporting farmers is seen as a way to encourage rural development. Since 2007, the Chinese government has massively subsidized agricultural insurance, and today China is the second-largest agricultural insurance market in terms of premium volume in the world, after the USA.

Thus, China has increased its insurance premium volume more than 10-fold in just a few years., says SCOR. Only five insurance companies offered agricultural insurance before 2006, but by 2017 the figure had risen to 31.

This very rapid growth makes China one of the most dynamic insurance markets of its size. Many new products and pilots have been launched, insurance conditions changed and new rules adopted., notes SCOR. As a result, many data series are very short, inconsistent or unrepresentative of today’s agricultural production and insurance conditions. The statistical methods used to collect the data, for instance for the statistical yearbook, have also changed. Adequate risk assessment is therefore a challenge, especially when it comes to major events and extremes. SDCOR is trying to examine what an extreme event means for a country with the size and market volume of China. It looks at the losses experienced by China over the past few years.

To answer these issues, weather data can provide initial insights, especially since it is an independent and unbiased source of information – independent of agricultural production systems and insurance conditions, and independent of loss adjustment procedures and soil fertility.

SCOR has presented a study based on weather data – more specially a drought index – to analyze drought risk in China. More details are on SCOR’s website.

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