Responding to the publication of the Lloyd’s new report ‘Harvesting opportunity: an overview of the Indian crop reinsurance market’, Dominic Oldridge, crop reinsurance underwriter with AEGIS London, said:
“This Lloyd’s Innovation report is a welcome step in the right direction, but some of the risk modelling thinking behind it remains muddled. I’ve written Indian crop business in the past, but over the last 18 months or so, I’ve regularly been approached for reinsurance capacity on Indian crop reinsurance schemes and have declined. There are several reasons why.
“First, the report makes the assumption that by modelling meteorological data we can predict crop yields. The reality is that there are many factors including soil and land type, investment, technology and farm management that have a major influence on crop yield. It seems logical to me that any insurance product that pays claims based on crop yield should ideally be modelled around what’s known as a yield risk curve. This is a proven approach.
“Second, reinsurers struggle to measure risk exposure and price risk at the time of contract placement because of inaccurate estimated business plans and poor available yield risk data.
“Finally, the local market’s bidding process means that the clusters of land each insurance company bids for each season can vary widely to the final actual exposures written. This means reinsurers are faced with totally different risks at the end of each season, but also at the beginning of each renewal period.
“I have no doubt that these are early developmental issues which I firmly believe can be overcome. The Indian PMFBY* crop insurance initiative has been built on a sound partnership between central and regional governments and the commercial domestic insurance industry. The next step is to fully integrate the global crop reinsurance industry to provide longevity to this risk sharing public-private initiative.”