The Swiss Re Institute, in its recent report, highlighted the significant gap in insurance coverage for crop production globally. According to the report, a substantial 60% of worldwide insurable crop production went unprotected against natural disasters and accidents such as fire, disease, and insect swarms in 2022.
The Swiss Re Institute defines the protection gap as the uninsured or unprotected portion of the resources necessary to mitigate a risk fully. The global crop protection gap is estimated to have reached USD 113 billion, marking a 28% increase in nominal terms since 2016. This comes when the agrifood system, which supports almost half of the world’s population, has become a critical concern due to the ongoing war in Ukraine.
The researchers underscore the importance of agricultural insurance in stabilizing farmers’ income, especially considering the heightened risk due to climate change and geopolitical tensions. The gaps in insurance protection have left a significant proportion of the global agrifood system vulnerable to shocks, potentially jeopardizing food security and the livelihoods of millions of farmers.
Swiss Re Institute recommends a two-fold approach to increase resilience in the agricultural sector. Firstly, reducing expected losses through investment can lower the risk of crop damage from natural catastrophes, helping narrow the protection gap and supporting economic growth. Such investments can generate significant economic dividends, outpacing the cost by multiples from 2:1 to 10:1.
Secondly, the report emphasizes the importance of expanding insurance coverage. Risk transfer, such as insurance, becomes essential when loss prevention measures reach their limit. The insurance industry can incentivize loss mitigation behavior, support risk transfer at both the household and corporate levels, and play a pivotal role in fostering the resilience of the global agri-food system.
The Swiss Re Institute report highlights the critical need for strategic investment and broader insurance coverage to safeguard the global agricultural sector against escalating risks. It is a call to action for insurers, policymakers, and agricultural stakeholders to collaborate in fortifying the resilience of a sector integral to the world’s economy and food security.
Read the complete report here.