Every entrepreneur, besides forecasting their costs and profits, sooner or later faces the need to forecast possible risks and other negative factors that could threaten the existence of the whole business. This is exactly where insurance can come to a business’s aid.
The topic of insurance is especially relevant for those in agribusiness, which, among the standard set of risks common to every business, includes many specific ones: climate change, adverse weather conditions and events, pests and diseases, poor harvests, and so on.
Agricultural insurance is a mechanism for managing all agricultural risks, providing partial or full compensation to a business entity for losses caused by the negative impact of weather and natural risks.
Today, insurance companies offer a wide range of insurance options against various types of risk and quite a few favorable agribusiness insurance offers.
Ukrainian insurance companies offer agribusiness the widest possible range of insurance types: insuring future harvests (against hurricane, storm, drought, floods, frost, plant diseases, etc.), animals (against animal death, theft, disease, accidents), agricultural machinery and other property (against damage, loss, destruction, etc.).
So, farmers have a broad range of insurance options, insured events and insurance institutions to choose from.
Is agricultural insurance an attractive option in Ukraine?
At first glance, definitely yes, everything seems very attractive and predictable – agribusiness carries many risks and needs insurance protection against the onset of negative consequences, meaning there’s demand for such services, and, accordingly, insurance companies shouldn’t be short of clients engaged in agribusiness.
However, as practice shows, farmers aren’t in a hurry to turn to insurance companies, and there are certain reasons for this.
First, negative past experience working with insurance companies. Many people in Ukraine have run into situations where, for one reason or another, they couldn’t get insurance payouts, which ultimately formed a somewhat negative attitude toward insurance companies among the population and caused distrust.
Second, small insurance payouts in case negative events occur. It’s worth noting that insurance in the agricultural sector isn’t a cheap pleasure, and the size of insurance payouts doesn’t cover the losses. What’s more, given the fairly low probability of an insured event occurring, agribusiness isn’t in a hurry to get insured, and instead tries to minimize its own risks.
Third, the difficulty of getting insurance payouts. There are more than a few cases where farmers run into complex bureaucratic procedures when getting insurance payouts, namely: proving that the insured event occurred, justifying the size of the insurance payouts, and so on. In such a case, both the insurance company’s business interests come into play, since it wants to minimize the insurance payout and accordingly preserve its assets, and the interests of farmers, who want to get monetary compensation for their losses.
How can you effectively insure your agribusiness?
First and foremost, you should analyze your own business and forecast the likelihood of certain negative events (insured events) occurring, the ones with the highest probability of happening.
Then, split all identified risks (negative events) conditionally into two groups: 1) risks that can be minimized independently; 2) risks that, if they occur, will bring the biggest losses and can’t be minimized independently.
It’s exactly this second group of risks that will need insurance.
The next step is choosing an insurance company and concluding an insurance contract.
To avoid problems getting insurance payouts, agribusiness needs to pay sufficient attention to the insurer’s reputation and the terms of the insurance contract.
The main advantages of agricultural insurance are:
- compensation for losses through insurance lets you settle accounts on time with processors, suppliers of material and technical resources, and other partners;
- in case of complete or partial harvest loss, there’s an opportunity to cover losses through insurance payouts;
- agricultural insurance encourages the use of modern technical and technological advances, in particular, applying reliable crop-protection products;
- lets you repay borrowed funds through insurance compensation if an adverse event occurs, and eases agricultural producers’ access to credit resources.
Summing up all of the above, we can confidently say that agricultural insurance, with the right approach, can already today become reliable protection for agribusiness and a profitable option for insurance companies. This type of insurance’s potential is quite significant, since agribusiness itself is developing rapidly and carries many risks. For its development, insurance companies need to secure government support, earn farmers’ trust, and meet their needs.
Yulia Artemenko,
economist at ABA “ASTRA” LLC
