As the nature of the threats facing olive growers changes, so too does the insurance industry that underwrites the risk posed by those threats.
In the past, “the main risks to olive growing were not climatic, but more disease (including parasites), price volatility and fraud (involving the re-allocation of olive groves),” one agricultural insurance insider told Olive Oil Times.
More recently, several European insurers have been working to increase the importance of climate-related changes in their underwriting and investment portfolios.
This move is particularly relevant in the agricultural sector, which is increasingly affected by climate change and extreme weather events.
According to research by Olive Oil Times, global olive oil production is set to fall for the second consecutive year to 2.4 million tonnes in the 2023/24 crop year, largely due to drought in the Mediterranean.
As a result, European insurers are issuing policies that combine protection against disease with protection against drought.
REVO Insurance, the first Italian operator to specialise in parametric risks and specialty lines, announced in October that it was extending its range of products for the agricultural sector to include cover specifically designed for Italian olive oil producers.
The Italian olive sector, worth €1.4 billion in 2022, “suffered a sharp drop in national production, down 37% or 121,000 tonnes, due to drought, heat and the olive fruit fly,” according to a national survey conducted by the Umbria Chamber of Commerce.
Despite the move to increase the importance of climate-related insurance in Europe, there is still a gap. According to the European Central Bank, only a quarter of losses from climate-related disasters are covered. “Greater coverage could reduce the economic damage they cause”.
Part of the reason for this gap is the high cost of insurance. In Spain, the world’s largest olive oil producer, a survey by Agropopular found that only 4.5 percent of the country’s olive grove area is insured.
“In the olive sector, it is possible to insure against drought, but it is a very high risk, so the price is high, and there are usually high deductibles and stop-losses,” an underwriter with an Italian company told Olive Oil Times. “For new olive groves, it would be necessary to have both irrigation cover and drought cover.”
Even when insurance is affordable, farmers may underestimate the likelihood and impact of disasters.
Alternatively, farmers could turn to new technologies to improve yields. “Farmers need improved agronomic techniques, new olive oil varieties and decision support,” the underwriter said.
For example, olive oil yields can be highly variable due to their dependence on sufficient rainfall at specific times in the fruit’s development; one option for hedging yield risk in cultivation could be satellite-based weather index insurance, according to research published in the Australian Journal of Agricultural and Resource Economics.
In Spain and Italy, olive farmers are already using satellite imagery to safeguard olive oil production by tracking where their land is driest and using precision irrigation.
Ultimately, farmers will need to strike a balance between technology and insurance to tackle the problem, as climate-related disasters could drive up insurance prices in the future.
In France, according to the central bank, premiums to cover these losses would increase by 130 to 200 percent by 2060. In terms of insurance prices, this represents an increase of between 2.8 and 3.7 percent per year, a significant rise in a low-margin business.
