Agricultural Risk Transfer

CHAPTER 2Concepts of Insurance

2.1 INTRODUCTION

The global insurance industry is of fundamental importance in managing an increasing number of perils, hazards and risks. Risk transfer from individuals, corporations and government entities to (re)insurers and capital markets is a proven concept to sustainably manage systemic risks from natural and man-made disasters. Insurance is based on key concepts that evolved around the insurability of risks, risk management and risk pricing, including actuarial and catastrophe modelling concepts to facilitate and optimise risk transfer.

As one of the largest and fastest growing speciality lines of insurance, agricultural insurance follows the main concepts of insurance but includes specific approaches in underwriting and pricing that need to address trends in data and estimation of catastrophe loss potentials from a large number of different perils. As the agricultural risk transfer industry grows, specific methods have been developed to price and model risks based on historical claims and proxies that range from weather data to outputs of mechanistic models.

This chapter provides a brief overview of global insurance markets and introduces the main concepts of insurance with reference to agricultural insurance. Special emphasis is put on the insurability of risks, the management of liabilities, insurance pricing and the concept of catastrophe risk modelling, which is gaining importance for agricultural risks. As risk management is a fast-evolving ...