Despite notable sector headwinds, ratings agency A.M. Best still views both the primary and reinsurance multi-peril crop insurance business as favourable, highlighting the “marriage” between carriers and agricultural focused technology firms as an efficiency driver.
In recent times, the U.S. government-subsidised multi-peril crop insurance industry has been under pressure, driven by weather-related losses, commodity price volatility, and also the renegotiated Standard Reinsurance Agreement (SRA).
At the same time, and following four years of underwriting losses ending in 2015, the market reported underwriting profitability in both 2016 and 2017, explains A.M. Best, in a recent crop insurance industry note.
Historically, explains the rating agency, this line of business has been very profitable, but growth is hindered as a result of high market penetration and potential changes to legislation that drive short-term uncertainty.
One such potential change concerns the federal crop insurance program, which is set to expire in September 2018, and which has come under increased scrutiny in recent times. A.M. Best notes certain proposals that have recommended numerous provisions to the program, which includes reducing the target rate of return from 14.5% to 8.9%, as well as limiting subsidies to individual farmers.
Furthermore, A.M. Best warns that enforced tariffs could result in significant volatility for crop commodity prices. Volatility, which, has already drove fluctuations in multi-peril crop insurance direct premiums written, explains the ratings agency.
Discussing legislation, A.M. Best says: “Although radical reform is unlikely, major cuts could change the landscape for famers and MPCI insurers alike. Despite the legislative uncertainty, the MPCI market is viewed favourably, with its traditional profitability and advancements in agricultural technology counteracting the current headwinds.”
Consolidation is another trend impacting the sector, underlined by large insurers absent multi-peril crop business as a way to diversify, while enabling those with multi-peril crop operations to diversify by geography and achieve greater scale, which A.M. Best says is becoming increasingly important in the sector.
Reinsurance capacity in the space continues to expand also, and pricing for reinsurance in the market remains favourable, says A.M. Best. Furthermore, reinsurers with excess capacity and experience in the crop market have also looked to acquire approved crop insurance providers, as both primary players and reinsurers look for greater scale.
Overall, A.M. Best views the market as favourable for the primary players and the reinsurers, highlighting the utilisation of technology as a driver of efficiency and an improved experience for farmers.
“The marriage of insurers and agricultural technology firms also is allowing farmers and insurers to gather more data, optimize yields and customize products. The results are higher yields and greater efficiency for farmers, less risk and lower claims-handling costs for insurers, and more automation for both parties,” explains A.M. Best.
