This summer may have been an outlier but the general trend is to dryer, hotter summers. “Previously, losses due to drought were dealt with in an ad hoc fashion by government compensation schemes,” says Board Member Michael Lösche. “However, this summer was the last straw; the authorities have realized that this approach is unsustainable. The consequence is that we will be obliged to offer drought insurance as part of our portfolio from the first of January next year.”
This represents one of the biggest challenges currently facing the Polish insurer. “We have to develop a risk profile upon which to base premiums,” explains Mr. Lösche. “This involves flying over the various areas under cultivation to identify where drought has the greatest effect and examining satellite images of the affected areas.”
Although the insurance will not be compulsory for farmers, from next year on they will no longer be paid ad hoc compensation. The new insurance is recognition that summers such as this year’s are likely to occur on a more frequent basis and that money will have to be put aside to fund compensation.
Insurance is simply a method of distributing the burden of risk more widely. Concordia Polska was created to help farmers compensate the risks associated with running a business largely at the mercy of the elements. “The Polish agricultural sector is one of the biggest in Europe,” says Mr. Lösche. “Poland is the biggest poultry producer in Europe, the third largest grower of apples worldwide, and has a similarly strong presence in grain and fruit production. The need for insurance is therefore very high.”
Concordia Polska covers risks associated with the unpredictability of food production. “Weather-related risks are high up on the list of products that we offer,” says Mr. Lösche. “In a similar way as the new drought insurance, these products are subject to state subsidies. In other words, farmers only have to insure a proportion of their losses – the remainder is covered by the state.”
We hope to claim the top spot in the next few years and believe that we can realistically increase premium volume to 300 million EUR in the medium term. Michael LöscheMember of the Board
Farmers operate according to a fixed agricultural calendar so that if a key sowing period is missed because of adverse weather conditions, it has a knock-on effect on income when a harvest they are relying on fails to materialize. “Government schemes and private insurance are designed to maintain liquidity in the system and tide farmers over.”
It is not just inclement weather that can have an adverse effect on the fortunes of the agricultural sector. Disease and pests are a problem for arable and livestock farmers alike. Diseases such as swine fever and foot and mouth have a disproportionately devastating effect when they strike because entire herds must be culled. Concordia Polska introduced a specific product covering livestock diseases at the beginning of this year.
“We will continue to add new products to our portfolio and can already offer cover more than just agricultural risks,” says Mr. Lösche. “Life insurance, accident cover and building insurance are also available. We want to be a full-service insurer for the agriculture sector.”
Farmers are a particularly loyal customer segment and, with 14% of the Polish population involved in agriculture, the market still holds huge potential. “With premium income of 100 million EUR, we are currently the second-largest player in the Polish market,” says Mr. Lösche. “We hope to claim the top spot in the next few years and believe that we can realistically increase premium volume to 300 million EUR in the medium term.”
Standing Concordia Polska in good stead in achieving this ambition is its strong European network. “We share ideas and experience with other European companies to introduce products and approaches that do not yet exist in Poland. Farmers here appreciate our expertise,” concludes Mr. Lösche.