Bonus Ep: Ag Insurance 101

Climate change will mean more frequent, extreme weather and more risk exposure for farmers around the world. This increased risk should be a driver for the business of agricultural insurers. But, it’s not easy to predict how climate change and digital-disruption might transform one of the world’s oldest industries.

Actually, we’ve come to realize it isn’t easy to understand how agricultural insurance works at all.

So, in the spirit of learning out loud, we’re releasing TWO episodes this week. This first one dives into the mysterious world of ag insurance with a 101-style conversation with Matt Coutts, Chief Investment Officer of Coutts Agro, and Tenacious Ventures General Partner Matthew Pryor.

We talk about:

  • How farmers think about risk and forms of insurance

  • What ag insurance products actually do, how they work, who is involved, and what the dynamics are between different players from brokers to master agents

  • Why ag insurance, as it is structured today, is a zero-sum game played out between insurers and farmers

  • What the different forces are that will shape the industry into the future

If you’re one of the few listeners who could, with total honesty, explain how agricultural insurance works today, you can skip to the second of this week’s episodes: an interview with Damon Johnson, Director of Strategic Projects at Global Ag Risk Solutions, on offering novel insurance products to canola farmers.

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Key takeaways

  • Indemnity insurance against weather risk works for farmers by closing the financial gap between what they actually have to sell at the end of the season, and what they could have had. This is challenging and expensive -- it requires a lot of complex information, including plenty that can only be collected by insurance agents and adjusters on the ground.
  • Insurance companies make money when weather destruction does not occur. This almost inevitably means that fast growing insurance companies can quickly end up insolvent due to a single weather event.
  • Ag insurance is inevitably a zero sum game between the insurance company and their farmer-customers. Every dollar in a farmer's hand, in other words, is a dollar out of the insurance company's bottom line.