Underwriting hard-to-insure problems for farmers

By teaming up with VanderSat, Swiss Re has overcome the cloud cover issue – one of the main pain points associated with satellite-derived imagery data – and is closer to underwriting hard-to-insure problems for farmers, most notably drought.

Swiss Reinsurance Company Ltd, better known as Swiss Re, is the world’s second-largest reinsurer. Founded in 1863 and based in Zurich , Swiss Re operates through offices in over 25 countries and was ranked 118th in Forbes 2000 Global leading companies 2016.

_{(Image: Swiss RE, © Leonardo Finotti, 2017)}

“In many countries, agri insurance is an immature line of business, lacking historical data on crop losses that can be used to correctly design and price insurance products,” said Hans Feyen, Swiss Re’s Head of Innovation and Agriculture Reinsurance for Europe, the Middle East and North America. “As such, we often work with proxy indicators for crop losses, mainly weather and crop health index data.”

The global reinsurer has been using remote sensing data for around seven years but, as Hans Feyen points out, VanderSat’s capability has allowed the firm to create new parametric insurance products that can give payouts to farmers in the event of predefined levels of drought. This approach also means that a payout need not be triggered by a 100% crop loss.

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Of the seven billion hectares of arable land available worldwide, only one billion hectares are insured. In part this is because, to date, it has been too difficult to determine the grounds for a payout and to define an abnormal natural occurrence, especially in areas where drought is common. Before they can determine what kinds of conditions are abnormal and should therefore be covered, insurers and reinsurers first need to know what normal is.

Inanutshell

OPPORTUNITY: The world has seven billion hectares of agricultural land but only 1 billion hectares are insured.

CHALLENGE: To enable Swiss Re to create a global agricultural parametric insurance product, despite the data gap between crop losses and the information available from satellites.

SOLUTION: VanderSat supplied high-resolution global coverage, long-term data records, daily observations and high correlations with yield.

KEY BENEFITS: VanderSat has alleviated the cloud cover issue – one of the main pain points associated with satellite-derived imagery data – and facilitated the underwriting of hard-to-insure problems for farmers (e.g. drought).

Working together while building a complex product calls for clear timelines and well-defined goals. Swiss Re and VanderSat therefore collaborated in a Beta Programme: VanderSat’s proof-of-concept phase where teams from both parties work together to build an operational product that has been scientifically validated.

“We worked together to validate our data collection method, not just in a few small fields but across millions of hectares all over the world,” says Menno van der Marel, VanderSat’s Non-Executive Chairman. “Our cooperation revealed a very good correlation between VanderSat’s data and crop yield, which now forms the basis for Swiss Re’s new product.”

In an unconventional move for a global reinsurer (whose revenues reached almost €34 billion last year), Swiss Re also teamed up with VanderSat on its newly launched farm management software platform, OptiCrop. This application enables both insurers and farmers to track a range of relevant factors, including crop health and weather conditions.

“Through this platform, we aim to provide selected clients with additional info, like soil moisture,” Hans Feyen of Swiss Re explains. “The data service is fully operational and near real time, so it can serve to warn farmers when drought is imminent and give them a chance to react.”

“In crop insurance, actuaries deal with the measurement and management of risk and uncertainty,” he explains. “They can calculate how often a hit can be expected. When you only have two or three years of data, the options for building an insurance product are rather limited. Long and consistent time series are vital.”