Agribusiness insurance ripe for growth in Brazil

Climate change a key driver behind rising demand

As a world leader, Brazilian agriculture has seen strong growth for over three decades. Total agricultural output has more than doubled in volume compared to its level in 1990 and livestock production has almost trebled, primarily due to productivity improvements and technological developments.

Despite this success, the sector continues to face significant risks predominantly from adverse natural phenomena. Brazil has experienced a range of these in recent years including heavy rainfall, devastating floods, high winds and hurricanes, storm tides and severe droughts.

In the face of these exposures, demand for agribusiness insurance policies has skyrocketed, with the number of policies covering agricultural risks rising from only 849 in 2005 to more than 100,000 in 2016. However, despite this rapid expansion, the market is still has room for growth. Currently less than 20% of Brazil’s planted agricultural area is insured, although the market aims to increase this to 70% in the coming years, in part through government subsidies – the Ministry of Agriculture announced one of more than 1 billion Brazilian Real (approximately GBP230 million) for the period 2016 to 2018 – and other incentives such as facilitated rural credit. We expect the exponential growth in the agribusiness insurance market to continue through 2017.

Stirling Leech, Sao Paulo

Huge debit card fraud in India will spark rush for cyber insurance

More insurers to recognise the scale of the opportunity and look to launch new cyber insurance products

The recent data breach impacting a number of major Indian banks, thought to have been caused by malware on an ATM network, compromised the security of an estimated 3.2 million customers in one of the country's largest-ever cyber incidents. While alarming, it was not entirely unexpected as cyber security continues to be an after-thought in every sector of the economy.

However, this incident may serve as a wake-up call and help to precipitate a reversal of the low growth trend in the cyber insurance market. There is a growing awareness that any business with a web presence or dependency on IT faces a range of cyber exposures, which is resulting in an uptick in demand for affordable cyber protection.

The number of providers of cyber cover in India has been limited but more and more Indian insurers are already including it as part of their treaty arrangements. Now, an increasing number of insurers are recognising the scale of the opportunity and looking to launch new cyber insurance products. Many of them will seek collaboration with foreign insurers – who have greater experience and capacity in writing cyber insurance business – for reinsurance and underwriting support.

Vineet Aneja, Mumbai

The concept of ‘insurance as aid’ will come of age

But only with concerted action by willing insurers

Parametric insurance is set to transform the way disasters are managed as governments and aid agencies re-set expectations about how fast aid can be made available using these developing insurance products.

Neighbouring countries in the developing world have formed mutuals that pay out promptly for defined natural hazards. This Autumn CCRIF SPC in the Caribbean (the pioneer of the concept in 2007) paid out $29.2 million to member countries within two weeks of them being hit by Hurricane Matthew. ARC did something similar when Malawi was hit by drought. But so much more could be done.

We predict that in 2017, commercial insurers will develop an appetite for offering this type of cover to national and regional governments. Swiss Re and a Lloyd's consortium have led the way in China and other parts of Asia. Can insurers work with the UN and other bodies to extend the reach of these products so that other agencies (including NGOs) can use them to fund their own humanitarian interventions?

One of the key challenges for the industry will be to help NGOs and others explain to potential donors why it makes sense to fund premiums for a parametric cover that might only occasionally pay out. In insurers’ favour is the inalienable argument, borne out by the hurricane Matthew experience, that payment based on a range of scientific data triggers is faster and more reliable than politicised decision-making about aid allocations could ever be.

Nigel Brook, London

Insurtech will permeate almost every aspect of the US industry in 2017

Existing state laws and regulations will require a rethink to avoid stifling innovation

The insurance industry is the area of financial services in which technological innovation has been especially lagging. However, for most of 2016, investment in “insurtech” – the innovative use of technology in insurance – outpaced investment in other areas of fintech. Examples of insurtech innovation in the United States have ranged from the launch of the peer-to-peer insurer Lemonade in New York for home insurance to the sale of drone insurance via a mobile app by Verifly.

In 2017, entrepreneurs, investors, existing insurers and other players in the insurance industry in the US will intensify their efforts to bring innovation and modernization to the sector. These developments will affect every part of the insurance industry – but especially in personal lines – from sales and marketing through underwriting to administration of claims.

However, existing state laws and regulations will require a rethink to avoid stifling such innovation as many were formulated to address the sale and administration of insurance in ways that will cease to be relevant. In the longer run, insurtech developments might even put pressure for more federalization of insurance regulation as new technologies will have a greater nationwide reach, such that state-level regulation of insurance may become increasingly difficult to administer.

Vikram Sidhu, New York

Directors and officers in Australia to see a range of new threats

Climate change and cyber top the list of emerging risks facing business leaders

Australian company directors and officers (D&O) could potentially soon be exposed to legal action for failing to properly account for the impact of climate change on their business. This risk is set to become a hot topic for discussion in 2017, following the recent release of a legal opinion from a prominent Australian barrister which concludes that climate change risks would be regarded by the Courts as being foreseeable, and therefore relevant to a director's duty of care and diligence under Australian law.

The relevance of climate change risks is heightened for D&O in industries such as insurance, energy and commodities, where the company's business model would be directly impacted by the increase in the frequency and severity of extreme weather events linked to climate change.

Cyber risks will also move up in the list of priorities for D&O with the expected introduction of mandatory breach legislation in Australia in 2017 and the resulting potential for financial exposure and reputational damage to the company and directors, who may incur personal liability as a result of a data breach. Directors will need to ensure that robust cyber resilience frameworks are embedded in their companies, consistent with the expectations of Australia's corporate regulator.

Dean Carrigan and Yvonne Lam, Sydney