Increasing numbers of agri players are starting to understand the value of insurance protection as a means to de-risk their investments and/or seek additional funding. The better insured the operation is, the more comfortable investors will be, writes Stephane Baldanoff, managing director of the food and agribusiness practice at JLT Asia.
A large proportion of the agribusiness insurance placements that we facilitate and handle are investment related and there are two angles from which we see enquiries for agri insurance; firstly where the operator wants to attract new capital in order to expand the business and secondly where lenders make it conditional to a loan facility.
At JLT we spend a lot of time talking to the various participants in this market, including banks, private equity firms and governments, because there is a lot of education that needs to be done on the topic. What kind of insurance is available? What are the risks? How can an insurance policy coverage be best utilised either as collateral or for capital raising? How does this differ in different markets or agri sectors? And so on.
In Asia, for example, there is a significant amount of investment going on in the livestock sector. Large commercial farms are appearing all over the region. The risks of disease and government-forced slaughters are huge when you have a concentration of animals on one or two sites. Investors and lenders therefore want to see comprehensive animal mortality insurance in place to protect their investment.
The challenge remains that the participants in this market are not thinking enough about insurance as a mechanism to transfer risk. There are, however, positive signs and JLT works with various private equity funds to address some of the key risk issues relating to animal mortality, loss of crop yield, profit protection, political risks and others. Our involvement helps identify many of the key operational risk issues. Furthermore, using our experience of dealing with the agri sector, we are able to provide professional advice to private equity funds on how to best manage such risks and, where applicable, transfer exposure to specialist insurers.
Also, lenders and investors should view insurance as another risk assessment tool. For instance, aquaculture is considered by many to be a risky sector. Insurers undertake thorough risk assessments of aquaculture farms before offering coverage. If the insurance is knocked back, an investor or lender should be asking why this happened. There is a genuine added-value in this case.
Ultimately, insuring risky investments makes a lot of sense. If lenders, investors and other stakeholders are able to reduce risk, it should naturally open the door to more transactions and allow lenders to recalculate risk exposure and therefore increase loan amounts. Also, from an operator’s perspective, the amount of collateral required can be significantly reduced if it can be shown that the collateral (livestock, for example) is adequately insured.
JLT is one of the world’s largest providers of insurance and employee benefits related advice, brokerage and associated services. Baldanoff joined the firm in 2010 and has over 10 years’ experience working closely with food and agribusiness companies and another 10 as an insurance broker.