Agricultural Risk Transfer

CHAPTER 9Forest Insurance

9.1 INTRODUCTION

Forests play a vital role as ecosystems, provide a large range of raw materials and serve as carbon sinks. While the global forest area has decreased in recent decades, planted forests have grown considerably and led to demand for risk transfer of production risks including physical losses from natural perils and carbon reversal under emission trading schemes in some markets. At the same time, government agencies' increasing costs to fight wildfires has led to some insurance transactions. Insurance is one of the main risk management approaches for production risks, mainly through named-peril insurance, with some applications of index-based insurance.

This chapter provides first an overview of trends in the forest sector and discusses different definitions of forest and its interpretation. An introduction to insurance approaches and products including key perils are provided thereafter. Plantation insurance as the main product is discussed, followed by an overview of concepts of carbon reversal insurance and firefighting cost covers. An outlook for index-based forest insurance and its potential use is then given.

9.2 SECTOR TRENDS

While the global forest area has been slightly decreasing for the main benefits to develop agricultural land, the area of planted forests under different production systems has been growing to satisfy the demand for timber products. Financial and production risks remain key challenges for small-scale and industrialised ...