Identifying the most significant risks in agriculture and the solutions applied to mitigate them, the main themes of the AON Agri Risk Management Conference

Aon România, one of the global leaders in insurance brokerage, organized the event Agri Risk Management: National Conference on Agricultural Risk Management on Tuesday, May 14, in partnership with CSR Nest. During the event, the main risks faced by farmers in Romania were identified from climate, financial, technological, and farm management points of view, while strategic solutions were offered to combat them.

The conference brought together agricultural and insurance experts to debate solutions to manage risks caused by extreme weather events, the importance of partnerships between insurers and farmers, and new technologies and innovations that can support and improve farm production.

Our esteemed speakers, including Eugen Anicescu – CEO of Aon Romania; Florin Constantin – founder of AGXecutive; Cerasela Tudor – senior expert within the business line "Agriculture" within Aon Romania, Horia Lupu – General Manager Agra Asigurari, Oleksandr Artiushyn – Senior Originator, New Re, Guillaume Garin – Business Development Manager – Agriculture, Descartes Underwriting and Gabriel Razi – independent analyst of the agricultural market, shared their insights in a dialogue with farmers and representatives of the most important associations and cooperatives of farmers and farmers.

"In 2022 and 2023, natural catastrophes, especially risks associated with drought and flooding, caused significant economic losses to the global economy (over $300 billion each year), but the percentage of recovery from insurance has not exceeded 40% in any year, and is even decreasing. These numbers underline the need for adequate coverage and advice for the general economy and the agricultural sector in the face of an increased recurrence of catastrophic events. Aon assumes the role of informing and advising agricultural companies, being in the front line of impact. We want to support farmers to protect their crops by developing solutions that meet today's needs. In the context of climate change, organizations are under pressure to rethink their risk management, increase insurance coverage and adopt "green" technologies, and understanding legislative changes is essential. We are facing a chronicity of acute risks in the past; in other words, we will face more frequent climate events that produce significant losses", said Eugen Anicescu, CEO of AON Romania.

In the agricultural year 2023-2024, lack of rainfall and soil drought affected much of the country from the beginning of the year and persist to this day. Autumn crops have already had limited production, and spring crops need more certainty. In addition, the high volatility of cereal prices has further complicated the situation of farmers.

"In April, extreme weather phenomena, such as hail in the Saraiu area, Constanta County, hit hard, affecting both autumn and spring crops. These events caused significant damage, including the first total damage in the 2024 season. These incidents are just one aspect of climate change's devastating impact on agriculture. Fires, droughts and other extreme weather events are becoming more frequent and intense, endangering farmers and agricultural production. In the face of these challenges, insurance solutions have become indispensable in protecting farmers and their activities. It is essential that farmers protect their crops and livestock with adequate insurance so that they are prepared to face risks and secure their incomes in the face of crises," said Horia Lupu, Director General Agra Asigurări.

The participants and the AgXecutive team conducted an interactive exercise, analyzing and mapping the main agricultural risks in a heat map, assessing them both by probability and impact. Among the first five risks identified are water shortages and soil and atmospheric drought in the south-east of the country affecting spring crops, along with lack of rainfall during sowing in autumn crops (rapeseed and wheat), followed by financial risk comprising market instability, cereal prices, volatility in cereal prices at harvest and stored production, lack of funding for farms in difficulty, hail and strong winds affecting the rapeseed harvest, extreme weather events, storms and storms and long-lasting or torrential rainfall, followed by higher prices for agricultural inputs and machinery.

"Not all existing insurance solutions seem suitable enough to address the systemic risks faced by our agricultural sector, especially drought, frost, puddles or epizootics. Farmers are acutely aware of the magnitude of the risks they face, especially in adverse economic contexts such as the current one when cereals have low prices and agricultural inputs have high prices, so they need maximum confidence in their insurance partner to move from a perception in terms of cost to one in terms of real risk reduction in agricultural insurance", pointed out Florin Constantin, founder of AgXecutive.

One proposed approach is to outsource risks by transferring part or all of them to other entities, such as insurance companies specializing in agriculture or other financial institutions. Thus, farmers can protect their crops, production and economic efficiency of the farm against risks caused by extreme phenomena, such as soil and atmospheric drought, lack of water, hail, strong wind, frost or fires, without exposing their entire capital and jeopardizing the financial stability of the business.

The adoption of innovative and effective risk management strategies can complement each other. Among the options proposed were crop diversification to reduce exposure to specific risks, advanced agricultural technologies to monitor and manage agrarian resources more efficiently, and investments in irrigation and water storage infrastructure to counter drought risk.

In the second part of the event, the discussion focused on specific comparative examples from Romanian farms, analysing case studies and insurance solutions. Parametric agricultural insurance is a product that is already gaining ground in multiple regional and international markets. It complements traditional solutions, providing farmers with financial stability in the face of losses caused by climatic factors.

"Spring started with summer temperatures, and March 2024 was the hottest March on record. In the second half of April, hail wreaked havoc in the Dobrogea area, with damages between 60-90% in large areas. It is essential to adapt quickly to these volatile conditions and identify effective solutions to support farmers in managing risks and protecting crops and agricultural infrastructure in the face of these complex challenges. Traditional and parametric insurance works complementary, covering different risks and offering farmers a broader level of protection. These two types of insurance do not lead to double insurance, but complement each other, reducing uncovered risks and increasing the farm's chances to minimize its economic losses through significant compensations, in case of an insured event", said Cerasela Tudor, Senior Consultant Agricultural Insurance Aon.

In the context of the increasing frequency of extreme climatic events and their impact on farmers, the AON Agri Risk Management conference highlighted the importance of adopting proactive risk management strategies in agriculture. Collaboration between the agricultural sector and the insurance industry, deploying advanced technologies and innovative solutions, can help increase resilience and sustainability in the face of climate challenges. Through wise investments and agricultural insurance, farmers can reduce uncertainty and ensure the stability of their activities, contributing to the protection of agricultural production and community food security.

The information provided by KomuniK