Insurance Needs for Olive Growers Change with Climate

Summary

The insur­ance indus­try is adapt­ing to the chang­ing threats fac­ing olive farm­ers, with a focus on cli­mate-related risks and drought in par­tic­u­lar. European insur­ers are increas­ingly incor­po­rat­ing cli­mate-related changes into their under­writ­ing and invest­ment port­fo­lios to address the impact of extreme weather events on olive oil pro­duc­tion, despite the high cost of insur­ance cov­er­age and the need for a bal­ance between tech­nol­ogy and insur­ance to mit­i­gate future risks.

As the nature of threats fac­ing olive farm­ers changes, so is the insur­ance indus­try that under­writes the risk posed by those haz­ards.

In the past, the ​“main risks for olive farm­ing was not cli­matic, but more dis­eases (includ­ing par­a­sites), price volatil­ity and fraud (involv­ing the re-assign­ing of olive loca­tions),” an agri­cul­tural insur­ance insider told Olive Oil Times.

More recently, sev­eral European insur­ers have been work­ing to ele­vate the impor­tance of cli­mate-related changes through­out their under­writ­ing and invest­ment port­fo­lios.

This move has become more per­ti­nent, espe­cially in the agri­cul­tural sec­tor, which is increas­ingly plagued by the chang­ing cli­mate and extreme weather events.

According to research from Olive Oil Times, global olive oil pro­duc­tion is set to decline for a sec­ond straight year in the 2023/24 crop year, falling to 2.4 mil­lion tons, largely due to drought in the Mediterranean basin.

As a result, European insur­ance under­writ­ers are issu­ing poli­cies that com­bine pro­tec­tion against dis­ease with that of drought.

REVO Insurance, the first Italian oper­a­tor spe­cial­iz­ing in para­met­ric risks and spe­cialty lines, announced plans in October to extend its range of prod­ucts for the agri­cul­tural sec­tor with cov­er­age specif­i­cally designed for Italian olive oil pro­duc­ers.

The Italian olive sec­tor, ​“worth €1.4 bil­lion in 2022, suf­fered a sharp fall in national pro­duc­tion, down by 37 per­cent or 121,000 tons, due to drought, heat and olive fruit fly,” accord­ing to a nation­wide sur­vey con­ducted by the Umbria Chamber of Commerce.

Despite the move to raise the impor­tance of cli­mate-related insur­ance in Europe, there is still a gap. According to European Central Bank data, only a quar­ter of the losses from cli­mate-related dis­as­ters are cov­ered. ​“Greater cov­er­age could reduce the eco­nomic dam­age that results from them.”

Part of the rea­son for this gap is the high cost of insur­ance cov­er­age. In Spain, the world’s largest olive oil pro­ducer, an inves­ti­ga­tion by Agropopular found that only 4.5 per­cent of the country’s olive grove sur­face area is insured.

“In the olive sec­tor, although it is pos­si­ble to insure for drought, it is a very high risk, so there is a high price, and usu­ally there are high deductibles and stop losses,” an insur­ance under­writer at an Italian firm told Olive Oil Times. ​“For new olive groves, it would be nec­es­sary to pro­vide both irri­ga­tion cov­er­age and cov­er­age against drought.”

Even when insur­ance cov­er­age is afford­able, farm­ers may under­es­ti­mate the like­li­hood and impact of cat­a­stro­phes.

Alternatively, farm­ers could turn to new tech­nol­ogy to improve yields. ​“Farmers need improved agro­nomic tech­niques, new olive oil vari­eties and deci­sion-mak­ing sup­port,” the under­writer said.

For exam­ple, olive oil yields can fluc­tu­ate sig­nif­i­cantly due to their depen­dence on suf­fi­cient pre­cip­i­ta­tion at spe­cific moments in fruit devel­op­ment; one option to hedge the yield risk in cul­ti­va­tion could be satel­lite-based weather index insur­ance, accord­ing to research pub­lished in the Australian Journal of Agricultural and Resource Economics.

In Spain and Italy, olive farm­ers are already using satel­lite images to safe­guard olive oil pro­duc­tion by track­ing where their land is the dri­est and using pre­ci­sion irri­ga­tion.

Ultimately, farm­ers need to set a bal­ance between tech­nol­ogy and insur­ance to tackle the issue because, mov­ing for­ward, cli­mate-related dis­as­ters could raise insur­ance prices.

In France, pre­mi­ums would rise by 130 to 200 per­cent by 2060 to cover these losses, accord­ing to the cen­tral bank. In terms of insur­ance prices, that is an increase of between 2.8 and 3.7 per­cent per annum, a sig­nif­i­cant rise in a low-mar­gin busi­ness.

• Deloitte
• Reuters
• Euro News