How comprehensive weather insurance is replacing the Disaster Relief Fund

From 1 January 2020, farmers will no longer be able to call on the Disaster Relief Fund after a natural disaster. From then onwards, they will have to take out their own weather insurance, but they will still receive subsidies during the first few years.

How comprehensive weather insurance is replacing the Disaster Relief Fund

A farmer’s income is uncertain year after year, because the harvest size is highly dependent on the weather. This is not likely to improve with climate change. The Disaster Relief Fund was there to cover losses in cases of long drought, heavy rainfall, exceptional hail damage and other natural disasters, but the Flemish government wants to abandon this. The majority parties have reached an agreement in this regard.

The government has used the fund to bear a large share of the costs following natural disasters. That was the Disaster Relief Fund’s purpose, although it was also used to a much lesser extent in case of other calamities. In 2016, no less than 97.3% of the total amount of the submitted claims was related to agricultural losses. The government has now developed a scheme in which the private insurance market handles this risk.

Up to 65% of the premium reimbursed

The government has provided a five-year transitional period to phase out the Disaster Relief Fund. Compensation from this fund will be systematically phased out, so that the private insurance market can be developed simultaneously. This avoids any farmers being left uninsured after too quick a transition in a sector that is not yet sufficiently familiar with private weather insurance.

Vanbreda is closely following this subsidy scheme. At the end of 2017, we already sat down with the department of agriculture and fisheries of the Flemish government, the Belgian association of (re)insurance companies Assuralia, the insurers, the farmers’ association of the Flemish and German-speaking communities of Belgium and some farmers’ syndicates.

Up to 65% of the premium will be reimbursed to farmers during the first three years in order to encourage them to take out private weather insurance. After that period, they will bear the full cost themselves.

Faster payment following a claim

The additional insurance means more costs for the farmers, but also brings certain benefits. As an emergency fund, the Disaster Relief Fund covered only a limited part of the sustained damage. Because of all the paperwork it involved, those affected often had to wait two to three years for possible compensation. Private insurance will bring considerable improvements in that regard.

New: index insurance policies based on statistics

All too often, the Flemish agricultural and insurance sectors focus on the traditional hail or comprehensive weather insurance policies. The new subsidy scheme also addresses this interpretation of traditional property damage insurance. If there is any possible damage, an assessor is sent into the field to estimate the actual damage.

Belgium’s neighbouring countries and other European countries offer alternative parametric and index insurance policies. In the case of those policies, potential production or crop shortfalls are easily identified with pre-agreed statistics (or satellite images) regardless of the underlying cause of the claim.

These insurance products are very much on the rise thanks to recent technological developments. They often offer more benefits than traditional property damage insurance: more comprehensive cover, faster claims settlement (and less debate), more transparency, worldwide cover and so on.

What’s more, the European Union subsidises up to 50% of the premiums paid by members of accredited producer organisations in the fruit and vegetable sector.

Data-driven insurance solutions

More and more insurers are focusing on these data-driven insurance solutions thanks to the current Fintech revolution. Vanbreda is in contact with several insurers who can offer targeted solutions to the Flemish agricultural sector. By increasing the supply, we are making a positive impact on the requested premiums.

As a broker, we therefore offer considerable added value to the sector. We use targeted analysis to look for the right insurance product from the right insurer at the lowest possible price.

Tim Pelkmans

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