Middle East’s geography and climate make it particularly susceptible to the negative impact of climate change and agriculture is highly vulnerable to these such changes in the climate. Middle East Insurance Review takes a look at how the insurers can mitigate the adverse effects of climate change on the region’s agriculture and farming.
Greenpeace Research Laboratories in November 2022 published a report Living on the edge The implications of climate change for six countries in the Middle East North Africa region. The report focused on Algeria, Egypt, Lebanon, Morocco, Tunisia and the United Arab Emirates.
The report said the MENA region is warming nearly twice as fast as the global average and is particularly vulnerable to the impact of climate change – including extreme water scarcity and extreme heat waves.
Warming at twice the global average
Greenpeace Research Laboratories science consultant Kathryn Miller said, “Many of the region’s countries naturally experience very warm and dry conditions relative to other parts of the world, making life challenging from the outset. However, we can see that there is considerable variability in weather patterns year on year, and it’s now clear that the region as a whole is warming fast, with an accelerated rate of 0.4° Celsius per decade since the 1980s – nearly twice the global average.”
According to the report, droughts and water scarcity in the region are very likely to impact agriculture and crop yields negatively in the coming decades. An analysis released by Verisk Maplecroft in September 2022 said by 2045, almost three quarters of the world’s current food production will face extreme risks from heat stress.
Agriculture ranks highest for both current and future heat stress risks in Verisk’s new Industry Risk Analytics dataset. It measures 51 different risks for 198 countries across 80 industries.
The study said the rising temperatures would not only jeopardise crop production but also deleteriously impact the health of agricultural workers working outdoors.
It said within a generation, a combination of rising global temperatures and humidity will make outdoor working increasingly difficult and even life threatening, with significant implications not only for the health of the agricultural labour force, but also for food production.
Governments’ responsibility
Countries in the Middle East can consider declaring food security to be as important as national security. To that effect, governments can implement and accelerate reforms of the agriculture industry, by reallocating resources and establishing a better financial system in rural areas. This will help modernise agriculture and help achieve food security for the country. It would also enable the region’s agriculture system to transform gradually from labour-intensive towards a machinery-intensive and equipment-oriented industry.
Governments can encourage mid-sized farms or scaled cooperatives to benefit from economies of scale so that machinery technology can be applied in a more economical and environment friendly way.
Middle East governments can also explore means to distribute agricultural catastrophe risks, promote the establishment and overall management of a national agricultural insurance catastrophe risk fund; strengthen agricultural insurance data information sharing; promote the improvement of the agricultural insurance system and effectively implement national policies to support agriculture.
Insurers’ crucial role
The role of insurance could be crucial in the above scenario. Insurers would need to promote sustainable agriculture by offering risk management services as well as traditional insurance. Insurers could encourage farmers to adopt more sustainable and climate-resilient practices.
Adoption of technology can catalyse the development and growth of a techno-agriculture insurance ecosystem that would be a great enabler in the climate change impacted environment.
Agricultural insurance is likely to become the new growth point for the P&C sector and it is expected to become an important business focus for non-life insurers in the future.
Technological innovations can transform the agriculture insurance industry to be more progressive. Drones are commonly used to help in the monitoring of crop growth, spraying of pesticides and even in processing insurance claims. Such technological innovations elevate the level of risk management in the industry.
Traditional agriculture insurance underwriting and loss assessments are mostly carried out by manual on-site sampling. The workload is huge and cumbersome, requiring a lot of time and labour costs and the claims settlement cycle is too long.
Technology – an enabler
Technology like mobile internet, remote sensing, geographic information system, global positioning system, AI, big data, cloud computing, IoT and other applications can help enhance agriculture insurance service capabilities, improve agriculture insurance precision and supervision efficiency and promote agriculture insurance innovation and development.
Insurers can promote sustainable practices by offering incentives and discounts to farmers who embrace sustainable methods. By motivating farmers to adopt these practices, insurers can help mitigate environmental risks and foster sustainable agriculture.
Insurers can also offer expertise and technical support to farmers and policymakers concerning climate risk assessment, risk reduction measures and other issues related to climate change and agriculture. This assistance can help build resilience and decrease vulnerability to climate-related risks.
International collaboration
In December 2022, a policy paper titled ADB Briefs no 233 Developing a Sustainable Agricultural Insurance System in the People’s Republic of China published by Asian Development Bank (ADB) said that government can create an enabling environment to foster innovative technologies for the agriculture sector.
The document suggested the creation of a ‘sandbox regulation’ dedicated to piloting new agricultural insurance and other risk management tools to technically determine farmers’ risk exposure and risk appetite and truly reflected in premiums and coverage.
International Crops Research Institute for the Semi-Arid Tropics principal scientist Murali Gumma speaking with
Middle East Insurance Review said scientists have collaborated with the ADB to develop high-resolution spatial maps that enable cropland mapping for insurance claims and agriculture policy decision making on targeting regenerative agriculture.
The cropland maps give an accurate location of the type of crops grown and also helps in continuous monitoring of crop stress (damage of any kind). These types of maps help insurance companies find false claims.
The data obtained by such maps could help insurers price risks better and decide on appropriate premiums.
Dr Gumma said, “Almost all crop insurance companies are adopting remote sensing for real-time monitoring and regular assessment of crop stress.
“Spatial maps for crop type and crop stress help insurance companies to identify the areas which are vulnerable to stress and identify crop types in such areas. They will assess the situation and frequency of crop stress to help in deciding their crop premiums. If the intensity of crop stress is higher, it will possibly lead to higher premiums and vice-versa.”
However, some challenges remain in adopting spatial map technologies especially in areas where it is difficult for insurers to obtain high resolution satellite images or in regions where small holdings are dominant.
International reinsurers can also bring new ideas, new technologies, products and a lot of information from the international market. In recent years, Swiss Re developed China’s agricultural risk map and used its experience in other countries to test and develop agricultural catastrophe index insurance in China.
Similarly, SCOR has undertaken extensive studies on protecting Cambodian farmers from the impacts of climate change. M