Climate hazards, hail: the best cover for farmers

Severe storms and hail hit many cultivated areas in late May and early June, raising the question again of insuring farmers against the risks associated with climate hazards. Currently, only 30% of agricultural land is insured.

In mid-June, the government recalled existing measures and a new scheme for universal coverage of farmers, which should come into force in 2023. The reform aims to protect farmers in the event of exceptional climate hazards and create national solidarity mechanism quickly compensate for crop losses.

Existing system aims to compensate and insure farmers against climate risks

A distinction needs to be made depending on whether the crop risk is considered insurable or non-insurable.

Coverage and compensation for risks considered insured

A Multi-Risk Climate Harvest Contract (CMCR) is a contract entered into by a farmer with an insurance company to cover a certain amount of crop against climate hazards. Its peculiarity lies in the fact that it offers three levels of guarantee:

  • The first tier covers the costs incurred to produce the affected crop, which receives a government subsidy at a maximum rate of 65%.
  • The second level will guarantee the operator based on its turnover, which also receives a subsidy, but at a rate lower than the first level,
  • And the third level (non-subsidized) allows the subscription to additional guarantees (buyback or reduction of the franchise, etc.).

However, this CMCR has two major shortcomings that make it obsolete for addressing current crop climate change issues: only about 30% of farmers subscribe to it (mostly due to its cost and the number of exemptions provided) and it is structurally in short supply. , due to the spread of climatic hazards over the past 10 years: droughts, floods, frosts, storms, hail, etc.

Coverage and compensation for risks recognized as uninsured

Climate risks recognized as uninsured by an insurance company can be compensated national agricultural risk management fund (FNGRA) under the name “Disaster Fund”. This fund only intervenes if the farmer suffers a loss of crop or loss of funds, one of which is the result of an exceptional and rare climatic event that is considered uninsurable. Any compensation process is carried out on a special website.

New system of agricultural insurance: universal insurance will work in 2023

In order to improve insurance coverage and compensation for farmers facing an outdated system, in early March, government agencies passed an agricultural insurance reform aimed at better compensation for crop losses and better protection of farms from hazards. “Indicative Law No. 2022-298 of March 2, 2022, concerning the better distribution of crop insurance in agriculture and the reform of climate risk management tools in agriculture”, establishes climate risk protection for all farmers.

Universal agricultural climate risk coverage

The new device will be based on three-tier climate risk sharing mechanism between farmers, the state and insurance companies:

  • The first stage will be based on the fact that the farmer will take responsibility for the so-called risks of low intensity (less than 20%).
  • The second floor will allow, for risks of medium intensity, to combine risks between territories and sectors through a crop insurance contract (MRC), insurance premiums for which are paid by “the state,
  • The third floor will allow, for so-called catastrophic risks, a direct guarantee against risks for all crops by the national fund for agricultural risk management (FNGRA).

Thresholds for each of the three floors will be set in accordance with the regulations during 2022.

This new system will come into effect on 1uh January 2023, after the regulations that define the insurance rules of the new system are published in 2022.

This reform of crop insurance fundamentally changes the existing system, giving preference to four principles of insurance:

  • National solidarity between the state, insurers, farmers to cover risks,
  • Versatility where every farmer can benefit from catastrophic risk coverage,
  • Compensation timeline,
  • Simplicity, in comparison with the previous device.