Agricultural insurances: improving climate risk predictions using crop models

Towards a new compensation system for French farmers

In the last years the French system for the compensation of crop losses has revealed its shortcomings. It is financed partly by public funds (French and European) and partly by private insurances. But government compensation excludes certain crops (such as grapes and cereal crops) and gained a bad reputation over the years because of its excessively long delays. Similarly, private insurances are criticized for being too complex and not accessible to all farmers. Climate change fueled climatic hazards in recent years have increased losses and exacerbated the ineffectiveness of this system, calling for a reform.

A bill was presented for discussion to the Council of Ministers on December 1, 2021 by Bruno Le Maire, Minister for the Economy, Finance and Recovery, and by Julien Denormandie, Minister for Agriculture and Food. The bill proposes to reform this system by establishing a coverage against climatic risks accessible to all farmers. To this end, a comprehensive system of compensation for climate-related crop losses has been presented. This scheme will be based on national solidarity and a new sharing of risks between the State, farmers and insurers.

To replace the current insurance system, the government has imagined “a universal, partnership-based system”, with “a three-story architecture” where risk will be covered differently according to the level of crop loss: 

1.     For low intensity risks (<30%), risk absorption by the farmer;

2.     For medium-intensity risks (between 30 and 70%), a multi-risk weather insurance will cover losses. Premiums of these insurances will be partly funded by public subsidy;

3.     For so-called catastrophic risks (more than 70% loss), loss will be covered by the government.

The text has been accepted in its preliminary form by the Assemblée Nationale and is being discussed by the two assemblies.

The need to adapt climate insurance schemes

Well- designed climate risk insurance – when applied in conjunction with other disaster risk management measures and strategies – can protect farmersagainst climate shocks by acting as a safety net and buffer, shortly after an extreme weather event. However, current agricultural insurances have often proven complex faced with recent climate-fueled disasters. Premiums are typically determined by historical yield data, which may prove ineffective when faced with increasingly variable and extreme weather. In addition, the calculation of compensation is complicated by the fact that traditional insurances are not used to isolate weather-related losses from losses due to poor farm management or other non-climatic causes.

A new type of expertise is clearly needed to simplify and objectify insurance warranties against climate risk.  To do so, science and technology can help Agricultural decision support systems are a useful protection tool against extreme climate events. Accurate weather forecast coupled with crop growth models or livestock heat stress indicators can be used to alert on climate risk, so that farmers can promptly take action and put in place measures against losses. They can also help to isolate and quantify loss directly due to adverse weather from loss due to non-climatic causes, by using seasonal yield predictions considering agronomic practices and soil properties.

For example, the creation of regional maps of potential yield based on crop simulations, is a promising alternative to historical data for the estimation of losses, and takes into account climate variability and agricultural practices. For insurances, these simulations might constitute a means to disentangle the effects of weather and management. For farmers, they might provide valuable information to plan measures against climatic hazards.  These maps can be created right from the start of the growing season and provide forecasts several months in advance, giving farmers more time to take the best farm management decision.

In addition, several scientific studies have highlighted how higher levels of soil organic matter improve water retention, which can mitigate crop yield losses from drought. According to a study by Yale University (1), there is clear quantitative evidence of the effects of soil organic matter on agricultural resilience, which should be used for financial planning or agricultural policy making.  If insurers were to include data on soil health when determining premiums, insurance liabilities could drop considerably, while food security increase.  Finally, climate-conscious farmers that adopt protection measures for their crops or livestock, such as sprinklers or anti-frost devices, could benefit from premium reductions or receive higher compensations.

If insurances will finally adapt to reward climate-conscious choices, it will not only protect farmers against climate shocks and secure food resources, but also help the transition to a more sustainable agriculture and planet.

1. Kane et al (2021) Soil organic matter protects US maize yields and lowers crop insurance payouts under drought, Environmental Research Letters 16.