Agriculture is a production sector that is exposed to various risks associated with diseases, pests, extreme weather events and other threats. Farmers and producers of agricultural products buy insurance to protect against crop losses due to natural disasters and loss of money due to lower prices for their products.
There are two types of agricultural insurance. Farmers can opt for hail insurance, which can also include fire and lightning insurance and multi-risk insurance (MPCI). The latter means that growers can insure their crops against various types of threats, including drought, excessive moisture and heat, as well as hail and all types of natural disasters. Hail insurance can be purchased throughout the growing season. As for the MPCI policy, it is best to buy it before boarding.
Providing crop insurance is no easy task. Insurance is most effective when people, exposed to a certain risk do not incur losses at the same time. If all insured persons suffer losses from fire or flood at the same time, the risks will not be distributed widely enough and become less accessible.
It is difficult to find an industry in the modern world that does not use satellite technology, and the agricultural insurance industry is no exception. The advantage of satellite technologies for crop insurance is that insurance companies can obtain accurate data to analyze the condition of crops and their losses. This leads companies to better valuations and the formation of profitable policies.
Advantages and Benefits
The main advantage of insurance is undoubtedly the protection of your crops from unforeseen circumstances. Many farmers live off their production products, so they need financial support. This area provides a solution to many problems, including:
- debt reduction and the ability to repay loans during lean seasons
- opportunity to earn income even in case of losses
- safe planting and crop protection
- assistance to farmers with the introduction of modern technologies on the farm
- obtaining production-critical information, including data on the consequences of natural disasters and tools for protection.
Insurance enables farmers to protect production by predicting disasters and other threats.
Furthermore, the companies also provide farmers with the necessary financial support. Today’s insurance companies are also using technological innovation to operate more efficiently. For example, the EOS Crop Monitoring platform that offers a satellite-based crop monitoring and analysis solution provides agricultural insurance companies with many benefits.
EOS Crop Monitoring allows insurance companies to solve various problems. With the help of satellite technology, they can receive accurate and up-to-date data on crop areas, evaluate their productivity, predict crop yields and provide farmers with transparency in insurance operations. The data from the platform is available online and offline. Crop insurers can use a wide range of analytical functions to obtain and verify the information they need. In this way, they can improve efficiency and quality of work while saving time and resources.
The production of food and clothing depends on agriculture. In addition, this industry is an essential part of the economy of many countries, including the United States. A financially stable agricultural sector provides society with food security and affordable food prices. At the same time, farmers need financial support as they often face extreme weather conditions that make production difficult.
For this reason, supporting agriculture in the form of insurance is essential. It is the primary risk management tool that enables you to recover from natural disasters, cope with market fluctuations, repay loans and obtain the necessary production equipment. The lack of effective insurance leads to job losses, bankruptcy, and stress for banks that lend to farmers.
The UN predicts a 33% growth in the world’s population by 2050. The demand for products will also grow and increase by 70 percent. At the same time, climate change is increasingly affecting agriculture, and the pressure on global food production continues to increase.
Crop insurance under these conditions is critical to prevent disruptions in the food production system. Beginning farmers can get a loan and join the agribusiness to meet the growing needs of the future. And those engaged in the cultivation of agricultural products for a long time get reliable protection.
Myths & Facts
Myth: Farmers can use market hedging, off-farm income, and crop rotation instead of insurance. However, the crop insurance system discourages farmers from using these instruments, which would be sufficient.
Fact: Farmers use many risk management strategies as the agriculture industry is quite risky. However, insurance can become the only tool used in a bank as proof of the ability to pay loans.
Myth: Crop insurance results in farmers not responding to market signals.
Fact: Crop insurance responds to market signals, not the other way around. Because of this, insurers use the market prices of the current season to determine how to recover losses.
Myth: Only large farmers who grow soybeans, corn, and wheat can use insurance for their crops.
Fact: Crop insurance is available to farmers regardless of the area of agricultural land and the volume of production. The insurance covers over 120 different crops.